Yields fall after US data supports 2016 Fed rate hike view

NEW YORK: US Treasury yields hit their lowest levels in over a week on Wednesday after weaker-than-expected U.S. retail sales and producer prices data supported views the Federal Reserve would delay a rate hike until 2016.

The Commerce Department said retail sales edged up 0.1 percent last month, below expectations for a 0.2 percent rise according to a Reuters poll of economists. Other data showed producer prices in September posted their biggest decline in eight months, suggested disinflation was reemerging.

Rates futures on Wednesday suggested traders anticipate the first Fed rate increase since 2006 would occur at the Federal Open Market Committee meeting in March 2016. The Fed's first rate hike is expected to hurt Treasuries prices.

"Investors are coming to terms with the fact that we're likely in a lower-rate environment for a longer period of time," said Jonathan Lewis, chief investment officer at Samson Capital Advisors in New York.

Yields on U.S. two-year notes, which are among the short-dated maturities considered most vulnerable to Fed rate hikes, hit their lowest level since Oct. 2, at 0.5567 percent. Seven-year yields also hit their lowest level since Oct. 2, at 1.6530 percent.

U.S. 30- and 10-year yields hit their lowest levels since Oct. 5 of 2.8367 percent and 1.9788 percent, respectively. Benchmark 10-year yields were set to post their biggest daily decline in over three weeks.

Analysts also said traders viewed data showing consumer inflation in China cooled more than expected in September as supportive of expectations that the Fed would keep U.S. rates lower for longer.

"What happens in China has a spillover into U.S. growth and inflation," said Matthias Rusinski, U.S. rates strategist at UBS in New York. He said the China inflation data, as a result, likely contributed to traders' expectations for a later Fed rate liftoff.

U.S. 30-year Treasury bonds were last up 1-4/32 in price to yield 2.84 percent, from a yield of 2.90 percent late Tuesday. Benchmark 10-year Treasury notes were last up 21/32 to yield 1.98 percent, from a yield of 2.06 percent late Tuesday.

U.S. two-year notes were last up 4/32 to yield 0.56 percent, from a yield of 0.63 percent late Tuesday.