Treasury Bonds Claw Back Losses on Retail Sales

By Dow Jones Business News, 
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By Min Zeng

U.S. Treasury bonds clawed back from earlier price losses Wednesday as a disappointing retail sales report boosted the allure of the haven market.

In recent trading, the 10-year Treasury note was 1/32 higher, yielding 2.436%, according to Tradeweb. Bond yields fall as their prices rise.

The five-year note is 2/32 higher, yielding 1.6% and the two-year note was 1/32 higher, yielding 0.424%.

Looming new debt supply kept the market's rebound in check. A $24 billion sale of 10-year notes is due at 1 p.m. EDT on Wednesday, followed by a $16 billion sale of 30-year bonds on Thursday.

Buyers scooped up bonds, sending the yield to a session low of 2.433%, after retail sales were unchanged last month from June when adjusted for seasonal variation, the Commerce Department said Wednesday.

Economists surveyed by The Wall Street Journal had expected sales to rise 0.2% in July.

"The trend in spending at the start of [the third quarter] isn't as strong as we had been expecting," said Andrew Grantham, economist at CIBC WM Economics. The report is "supportive" for Treasury bonds.

Analysts said the latest sign of tepid consumer spending supported the Federal Reserve's case to be patient in raising interest rates.

Bond yields have fallen this year, driven by signs of an uneven pace of the global economic growth and geopolitical tensions in Ukraine and the Middle East.

The 10-year note's yield tumbled to 2.35% on Aug. 8, the lowest intraday level since June 2013. The yield traded at 3% at the start of January.

Low haven-bond yields have driven investors to seek higher income in the global markets. Concerns have risen lately that valuations in riskier assets such as stocks and corporate bonds sold by low-rated companies, or junk bonds, are stretched.

Investors are also concerned about the health of some riskier assets as the Fed is expected to end its monthly bond buying later this year and start raising interest rates in 2015.

Traders said any big selloff from U.S. stocks would drive investors into Treasury bonds, sending yields lower.

Lower Treasury bond yields this year have confounded bond investors and analysts who have predicted that the yield should have continued to climb from 3% at the start of the year.

Interest-rate strategists at Goldman Sachs Group Inc. and JPMorgan Chase & Co. still expect the 10-year yield to rise to 3% at the end of the year.

Write to Min Zeng at min.zeng@wsj.com


  (END) Dow Jones Newswires
  08-13-140915ET
  Copyright (c) 2014 Dow Jones & Company, Inc.


This article appears in: US Markets , Bonds , Economy , Real Estate

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