NEW YORK: The benchmark 10-year US Treasury yield jumped on Thursday after a batch of economic data was likely to keep the Federal Reserve on its tightening path while the European Central Bank’s plan to unwind stimulus was less aggressive than anticipated.
US retail sales rose 0.5% in March, just shy of the 0.6% estimate, while February data was revised to a 0.8% gain from the initially reported 0.3% rise. March sales got a large boost from higher gasoline prices.
Labor market data remained strong, with weekly initial jobless claims rising by 18,000 to 185,000, above the 171,000 estimate.
US yields began to move higher after the ECB maintained plans to end its stimulus program in the third quarter but gave no further insight on its schedule for raising interest rates, citing uncertainties stemming from Russia’s invasion of Ukraine.
By contrast, the Federal Reserve has taken a more aggressive stance in its tightening plans, with investors largely anticipating a 50-basis-point hike at its May meeting according to CME’s FedWatch Tool.
“From the Fed’s perspective and from the market’s perspective you are not getting any help from the European Central Bank, the dollar is getting stronger and there is more work to do for US rates markets - that is some of how it is being interpreted at this point,” said Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle.
“The market believes there is a lot more to go because nothing seems to be dissuading the Fed at this point, even though the retail sales numbers weren’t bad but they weren’t great, they certainly indicate the consumer is not falling behind the curve but they are not accelerating spending just yet,” Haworth added.
The yield on 10-year Treasury notes was up 13.9 basis points at 2.828% and was on pace for its biggest daily basis point climb since April 5.
New York Fed President John Williams said on Thursday the Fed should reasonably consider raising interest rates by a half percentage point at its next meeting in May, echoing calls from other policymakers.
The 30-year Treasury bond yield was up 12.6 basis points at 2.923% after touching 2.928%, its highest level since May 3, 2019.
A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 36.8 basis points. The curve inverted at the end of March, a change many consider a reliable recession indicator.
The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 11.6 basis points at 2.458%.
The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 3.439%, after closing at 3.363% on Wednesday.
The 10-year TIPS breakeven rate was last at 2.91%, indicating the market sees inflation averaging 2.9% a year for the next decade.