US bond yields rise as retail sales grow in June

NEW YORK: US Treasury yields increased on Monday with the two-year yield hitting a near decade peak as domestic retail sales recorded growth for a fifth straight month in June, supporting the view of solid economic growth in the second quarter.

The encouraging figures on store sales offset concerns about United States' trade friction with China and other trade partners, reducing some safe-haven demand for US government bonds, analysts and fund managers said.

"The economic news has been pretty good. Trade concerns are getting a bit pushed to the sidelines for now," said Andrew Richman, director of fixed income at SunTrust Advisory Services in Jupiter, Florida.

The Commerce Department said retail sales rose 0.5 percent last month, compared with an upwardly revised 1.3 percent gain in May.

At 10:35 a.m. (1435 GMT), the benchmark 10-year Treasury yield was 4.2 basis points higher at 2.873 percent, while the two-year yield was 2.5 basis points higher at 2.607 percent after touching its highest level since August 2008.

Federal Reserve Chairman Jerome Powell is due to give two days of testimony before Congress starting on Tuesday. He is expected to express confidence in the economy and affirm the Fed's gradual approach to raising short-term interest rates, analysts said.

"I think he will stay on par with what he has been saying," said Sean Simko, head of global fixed income management at SEI Investment Co. in Oaks, Pennsylvania.

The futures market signaled traders saw roughly a 60 percent chance the US central bank would raise key overnight borrowing costs twice more in 2018 to 2.25 percent to 2.50 percent, according to CME Group's FedWatch program.

The Fed's current rate-hike campaign has stoked concerns short-term yields would eventually rise above long-dated yields, causing the yield curve to invert

An inverted yield curve has preceded the past five US recessions.

Earlier Monday, the spread between two-year and 10-year Treasury yields contracted to 23.40 basis points, the tightest since July 2007. It was last at 26.40 basis points, nearly 2 basis points wider than late Friday.

Meanwhile, the corporate bond sector is flashing rising recession risk amid the seeming vigor of the current expansion.

Some investors downplayed risk of a recession if the yield curve does invert.