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U.S. yields rise to multi-week highs on receding trade tensions, data

Credit: REUTERS/THOMAS WHITE

U.S. Treasury yields climbed to multi-week peaks on Friday, as trade tensions between the United States and China eased further after more conciliatory measures, with U.S. recession risks continuing to diminish after stronger-than-expected retail sales data.

By Gertrude Chavez-Dreyfuss

NEW YORK, Sept 13 (Reuters) - U.S. Treasury yields climbed to multi-week peaks on Friday, as trade tensions between the United States and China eased further after more conciliatory measures, with U.S. recession risks continuing to diminish after stronger-than-expected retail sales data.

Yields on U.S. benchmark 10-year notes and 30-year bonds hit five-week highs, while those on two-year notes touched their highest in six weeks. Both 10-year and 30-year yields were on track for their largest weekly rise since U.S. President Donald Trump's election in November 2016.

The U.S. two-year yield was on pace for its highest weekly increase since June 2009.

"We have the continued warming of relationships over the trade talks. And we have the consumer still strong with retail sales and those two just added fuel to the fire," said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee.

"Have we turned the corner in rates? I don't know if it's a complete turn. We have had a reversal for now, but we have trade talks coming up and we have the Federal Reserve meeting coming up. There is a lot of potential news that could turn us back around."

On Friday, China's official Xinhua News Agency reported that Beijing will exempt some agricultural products from additional tariffs on U.S. goods. The United States and China have both made amicable gestures, with China renewing purchases of U.S. farm goods and Trump delaying a tariff increase on certain Chinese goods.

On the data front, U.S. retail sales increased more than expected in August, rising 0.4%, lifted by spending on motor vehicles, building materials, healthcare and hobbies. The average forecast was for a 0.2% gain in August.

Excluding automobiles, gasoline, building materials and food services, retail sales climbed 0.3% last month after rising by a downwardly revised 0.9% in July.

"The resilience of core inflation and control retail spending may reduce the forward markets odds of a rate cut in October to lower than 45%," said John Herrmann, rates strategist at MUFG Securities Americas in New York.

In mid-morning trading, U.S. benchmark 10-year note yields US10YT=RR rose to 1.827% from 1.791% late on Thursday, hitting a fresh five-week high of 1.843% after the retail sales data.

Yields on 30-year bonds were also higher at 2.301% US30YT=RR from 2.264% on Thursday, touching a five-week high as well of 2.317%.

U.S. two-year yields, on the other hand, hit a six-week peak of 1.767% following the retail sales data. They were last up at 1.744% US2YT=RR, from Thursday's 1.727%.

September 13 Friday 10:01 AM New York/1401 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

1.9175

1.9585

0.003

Six-month bills US6MT=RR

1.85

1.8982

0.000

Two-year note US2YT=RR

99-132/256

1.7529

0.026

Three-year note US3YT=RR

99-106/256

1.7013

0.029

Five-year note US5YT=RR

97-240/256

1.6855

0.035

Seven-year note US7YT=RR

97-124/256

1.7608

0.033

10-year note US10YT=RR

98-40/256

1.8291

0.038

30-year bond US30YT=RR

98-216/256

2.3037

0.040

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

-0.50

1.25

U.S. 3-year dollar swap spread

-3.50

0.75

U.S. 5-year dollar swap spread

-6.00

0.75

U.S. 10-year dollar swap spread

-11.50

0.50

U.S. 30-year dollar swap spread

-41.50

1.00

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Kevin Liffey)

((gertrude.chavez@thomsonreuters.com; 646-223-6322; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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