By Dow Jones Business News,
December 12, 2013, 12:25:00 PM EDT
By Carolyn Cui
U.S. Treasury prices dropped after a report showed American shoppers spent more in November than economists predicted,
buoying the prospects of steady economic growth for the fourth quarter.
Around noon, the benchmark 10-year note fell 10/32 in price, yielding 2.883%, according to Tradeweb. The 30-year bond
lost 7/32 in price to yield 3.892%. Bond yields fall when prices rise.
The Commerce Department Thursday reported retail sales rose 0.7% last month, the sharpest increase since June and
beating the 0.6% rise forecast by economists. The jump in November retail sales signals a strong start to the crucial
holiday shopping season, offering hope that American consumers, who account for two-thirds of economic output, could be
gaining more solid footing.
"Further rise in interest rates will primarily be driven by the economic data, not by changes to the Fed's QE
(quantitative easing) program," said Bill Irving, a portfolio manager of government bonds and mortgage debt at Fidelity
Thursday's stronger data came days ahead of the Federal Reserve's meeting on Dec. 17 and 18, when the officials are
expected to debate whether they should start winding down its monthly $85 billion bond-buying program.
Treasury yields have already moved up significantly since early May when Fed officials first hinted at a taper later
this year. Many bond investors and analysts now believe the market has largely priced in a Fed taper.
Thursday, investors were unfazed by a sharp increase in the number of people filing for new unemployment benefits last
week. Initial jobless claims rose by 68,000 to a seasonally adjusted 368,000 in the week ended Dec. 7, according to the
Labor Department. That was the biggest increase in more than a year. But analysts said the latest figures may have been
affected by the seasonal factors.
In a latest sign of subdued inflation, prices of goods imported into the U.S. fell again in November by 0.6%, the
Labor Department said. Year over year, import prices were down 1.5%.
Over the past month, expectation for the Fed to start tapering at its December meeting has increased as a result of
improved labor market and consumer confidence.
But most of the market participants still see Fed tapering as a 2014 event, citing the dearth of liquidity in the
year-end holiday markets, the subdued inflationary backdrop, and the Fed's reluctance to surprise the market again.
Earlier in the week, a budget agreement was reached between House and Senate negotiators, which was designed to avert
another economy-rattling government shutdown in January. If passed by Congress, this will clear one last hurdle to a
start of Fed tapering at its January meeting, analysts said.
"We expect the Fed to begin tapering QE in January and end bond purchase by the fall of 2014," said Jennifer Vail,
head of fixed-income research at U.S. Bank Wealth Management.
Ms. Vail said the change of the composition in the Federal Open Market Committee voting membership early next year
will also tilt the balance toward less easing, as several incoming members are considered "hawkish."
Write to Carolyn Cui at firstname.lastname@example.org
(END) Dow Jones Newswires
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