The yield on 10-year Treasuries reached its highest level in eight months before retail sales data that economists forecast will add to the case for the Federal Reserve to increase interest rates this year.
Benchmark Treasury prices have declined in June, with this month’s yield increase already the most in two years. While the bond rout began in Germany, signs of strength in the U.S. economy, particularly in the labor market, are also reducing demand for haven fixed-income assets. The Treasury Department is selling $13 billion 30-year debt on Thursday, the final tranche of $58 billion of bond auctions this week.
“The fundamental backdrop in the U.S. has become more bond-bearish,” said John Stopford, head of fixed income at Investec Asset Management in London. “The rationale for the Fed to tighten is strengthening. There is a danger that the market reprices more aggressively and we see higher levels. Our sense is that fair value in Treasuries is a little bit below 3 percent.”
The U.S. 10-year yield was little changed at 2.491 percent at 7:10 a.m. New York time, according to Bloomberg Bond Trader prices, and touched 2.4985 percent, the highest since Oct. 1. The price of the 2.125 percent note due May 2025 was at 96 26/32 of face value. The yield has risen about 37 basis points this month, the biggest increase since May 2013.
Retail sales climbed 1.2 percent in May, according to the median forecast of economists surveyed by Bloomberg. Sales growth stagnated the previous month and declined in the first quarter of the year.
The 30-year securities being sold yielded 3.22 percent in pre-auction trading, up from 3.04 percent at a previous auction on May 14. Investors bid for 2.2 times the amount offered at last month’s sale.
The U.S. auctioned $24 billion of three-year debt on June 9 at a yield of 1.125 percent, the highest since April 2011, and $21 billion of 10-year notes on Wednesday. The sale of benchmark debt drew the most demand this year as the 2.461 percent yield was the highest since September.
Treasuries have lost 1.6 percent in the past month through Wednesday, according to Bloomberg World Bond Indexes. By comparison German bunds have lost 2.9 percent.