Add retail sales to the mix of economic data boosting optimism among Treasury investors.
U.S. government debt jumped after a report showed consumer purchases increased less than forecast in March, stoking speculation a harsh U.S. winter isn’t the only thing holding back economic growth. The drop in U.S. 10-year yields was the most since April 3, when a below-forecast payrolls report had traders pushing back bets for when the Federal Reserve will start raising interest rates from zero.
“The weak economic data provided a catalyst for the rally,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which manages $61 billion in assets. “It’s just one data point, but it strips the validity of the weather argument.”
Yields on 10-year notes fell three basis points, or 0.03 percentage point, to 1.90 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. Yields dropped seven basis points on April 3. The price of the benchmark 2 percent note due in February 2025 rose 1/4, or $2.50 per $1,000 face value, to 100 29/32.
Treasuries extended an earlier advance as Commerce Department figures showed retail purchases increased 0.9 percent, the first gain in four months, after a 0.5 percent drop in February. The median forecast of 87 economists surveyed by Bloomberg called for a 1.1 percent advance.
Along with the nonfarm payrolls miss earlier this month, the retail-sales report pointed to something more fundamental restraining growth than just unseasonable weather.
That may keep the Fed from raising borrowing costs in 2015, said Christopher Sullivan, who oversees $2.4 billion as chief investment officer at United Nations Federal Credit Union in New York.
“If this soft patch develops into something more troublesome, or we don’t get the type of recovery we had last year, then they will in fact have to postpone any normalization of rates into next year,” said Sullivan.
Central-bank policy makers said in their last statement March 18 that a rate increase at their April 28-29 “remains unlikely,” and traders see zero chance of it happening at that meeting, according to futures trading. The market now gives 53 percent odds for the first hike to come in December.
Policy makers have held the main lending rate at zero to 0.25 percent since 2008 to support the economy.
The Washington-based International Monetary Fund didn’t offer optimism for higher rates anytime soon, as it cut its 2015 U.S. growth forecast by 0.5 percentage point to 3.1 percent.
“It’s a 70 percent consumption-based economy,” said Tyler Tucci, a U.S. government-bond strategist in Stamford, Connecticut at Royal Bank of Scotland Plc’s RBS Securities unit, one of 22 primary dealers that trade with the Fed. “If the members of that economy are not spending, it will be difficult to get U.S. gross domestic product above 2.5 percent.” GDP expanded 2.2 percent in the fourth quarter.
The 0.2 percent increase in the producer price index followed a 0.5 percent drop the prior month, a Labor Department report showed Tuesday. Over the past 12 months, wholesale costs fell 0.8 percent.
The central bank’s preferred measure of inflation has been running below its 2 percent target for almost three years.