Yields drop as retail sales miss expectations

NEW YORK: US Treasury yields fell on Tuesday after data showed that retail sales rose in March for the first time since last year, but at a slower pace than expected, adding to bets the Federal Reserve was unlikely to increase interest rates in June.

The Commerce Department said retail sales increased 0.9 percent. That was the largest gain since March of last year and snapped three straight months of declines blamed on harsh winter weather.

Economists polled by Reuters forecast retail sales rebounding 1 percent last month.

"It's lower than consensus, you can make a case that some of the winter effects are still lingering," said Sean Murphy, a Treasuries trader at Societe Generale in New York. "This is slightly helping to confirm that June might be a little bit too early."

Weaker-than-expected jobs growth in March and more dovish minutes from the Fed's March meeting have boosted expectations that the US central bank will wait longer before raising interest rates. Until the recent spate of weakening data, some investors thought a rate increase in June was likely.

Other data on Tuesday showed that US producer prices rose in March after four straight months of declines and there were signs of some firming in underlying inflation.

The Labor Department said its producer price index for final demand increased 0.2 percent last month, with rising prices for goods accounting for more than half of the jump.

Benchmark 10-year notes were last up 16/32 in price to yield 1.87 percent, down from 1.94 percent late Monday.

Concerns that Greece may default on its debt and leave the European Union also added a safety bid for US bonds and helped send German government bond yields to record lows.

Greece is not moving fast enough to draw up and implement structural reforms and there is limited time to prevent the country from running out of cash, European Commission Vice President Valdis Dombrovskis said on Monday.

German 10-year note yields dropped to a low of 0.135 percent. Bond purchases by the European Central Bank and fears about Greece have boosted the debt, even as the markets grapple with a heavy week of supply.

Slowing international growth and geopolitical uncertainties are among other factors seen holding back the US central bank for raising rates in the near term.