Treasuries Extend Decline to Second Week Before Yellen Remarks

  • U.S. retail sales in September rose by most in three months
  • Treasury 10-year note yield reached four-month high this week

Treasuries headed for a second straight weekly decline as traders waited for a speech by Federal Reserve Chair Janet Yellen for clues on the path of interest rates.

Ten-year yields were close to a four-month high as data showed U.S. retail sales climbed in September by the most in three months, while a University of Michigan consumer sentiment index dropped to a one-year low. Yellen is scheduled to speak at a Boston Fed conference Friday.

Traders are scouring data for signs that the U.S. economy is strong enough to warrant a rate hike, as a bond-market gauge of inflation expectations this week touched the highest since May. Yellen’s remarks come two days after minutes of the Fed’s September policy committee meeting showed “several” of the majority who supported the decision to hold rates steady said it was a “close call.”

“The weaker-than-expected Michigan numbers put a little bit of a bid in the market,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 23 primary dealers that trade with the Fed. “Retail sales data is closer to expected except for the control group. It didn’t really equate with an uptick in the market.”

Benchmark U.S. 10-year note yields rose two basis points, or 0.02 percentage point, to 1.76 percent as of 11:41 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 1.5 percent security due in August 2026 fell to 97 21/32. The yield has climbed about four basis points this week, and reached about 1.8 percent on Wednesday, the highest since June 3.

Fed fund futures indicate the probability of a rate increase by the FOMC’s December meeting is about 66 percent, up from 52 percent a month ago. The calculations assume that the effective fed funds rate will average 0.625 percent after the next increase. The Bloomberg Barclays U.S. Treasury Index has lost about 0.7 percent this month, on pace for the biggest decline since June 2015.

The 0.6 percent advance in retail sales followed a revised 0.2 percent decline in August, Commerce Department figures showed Friday. So-called core sales, used to calculate gross domestic product, rose a smaller-than-projected 0.1 percent.

The University of Michigan preliminary index of sentiment declined to 87.9 from 91.2 in September, according to a report Friday, weaker than the lowest estimate in a Bloomberg survey of economists. Long-term inflation expectations declined to a record low.

It’s going to take stronger data to “drive yields to new highs,” said Thomas Roth, senior Treasury trader in New York at MUFG Securities Americas Inc.

The 10-year break-even rate, which measures the difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, rose to about 1.66 percentage point.

    Before it's here, it's on the Bloomberg Terminal.