Bloomberg News

Treasuries Drop as Retail Sales Fell in May Less Than Forecast

June 14, 2011

June 14 (Bloomberg) -- Treasuries fell, pushing the 10-year note yield to the highest level in almost two weeks, as retail sales dropped in May less than economists forecast and producer prices rose more than projected.

Government debt slid earlier as China’s retail sales and industrial output increased last month. Federal Reserve Bank of Dallas President Richard Fisher reiterated yesterday that policy makers have “done enough” on stimulus and should focus on price stability.

“It’s relatively bearish economic data for Treasuries across the board,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “We sold off pretty nicely.”

The yield on the 10-year note increased eight basis points, or 0.08 percentage pointn, to 3.06 percent at 9:14 a.m. in New York, according to BGCantor Market Data prices. The 3.125 percent security due in May 2021 slid 21/32, or $6.56 per $1,000 face amount, to 100 17/32.

The 10-year note yields touched the highest level since June 1 after falling last week to 2.92 percent, this year’s low. Two-year note yields advanced four basis points to 0.43 percent. A one-point drop in the 30-year bond pushed the yield to 4.26 percent.

Retail sales dropped 0.2 percent in May after a 0.3 percent increase in the previous month, the Commerce Department reported. The median forecast of 81 economists in a Bloomberg News survey was for a 0.5 percent decrease.

Wholesale Prices

Wholesale prices in the U.S. rose last month more than forecast, led by higher costs for fuel and the fastest rise in 30 years for apparel and textiles.

The 0.2 percent increase in the producer-price index compares with the 0.1 percent median forecast of economists, the Labor Department reported. The so-called core measure, which excludes volatile food and energy costs, increased 0.2 percent, matching projections.

China’s industrial production grew 13.3 percent last month, compared with the 13.1 percent median forecast of economists. Consumer-price inflation accelerated to 5.5 percent, the fastest pace in almost three years. China raised banks’ reserve requirement ratio by 50 basis points, effective June 20.

Futures on the Standard & Poor’s 500 Index climbed 1 percent. The MSCI Asia Pacific Index of shares rose 1.1 percent, and the Stoxx Europe 600 Index advanced 0.7 percent.

Quarterly Rally

Treasuries have rallied this quarter as weak economic reports encouraged speculation that the central bank will keep borrowing costs low to support the recovery.

Futures show the likelihood that policy makers will increase the target rate for overnight lending between banks by March 2012 dropped to 22 percent, from 35 percent odds a month ago. The central bank has held its benchmark in a range from zero to 0.25 percent since December 2008.

The Fed plans to purchase $2.5 billion to $3.5 billion of debt due from December 2012 to November 2013 today under the $600 billion debt purchase program expiring this month.

Fisher said yesterday in Dallas he won’t support a third round of quantitative easing, saying “we’ve done enough” to support the U.S. economy.

Record monetary stimulus is still needed to boost a “frustratingly slow” recovery, Fed Chairman Ben S. Bernanke said last week. He is due to speak in Washington on fiscal sustainability today.

Treasuries have returned 3.1 percent this quarter, the most since the second quarter of last year, according to a Bank of America Merrill Lynch index.

--Editors: Dennis Fitzgerald, Dave Liedtka

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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