Bloomberg News

Treasuries Tumble on Retail Sales; 10-Year Yield Rises to 3.10%

June 14, 2011

June 14 (Bloomberg) -- Treasuries fell, pushing up 10-year note yields to 3.10 percent for the first time this month, as retail sales dropped in May less than analysts forecast and producer prices rose more than projected.

The benchmark security tumbled the most since January on eased concern the economy is slowing as well as speculation this quarter’s rally in bonds may be hard to sustain. Bonds remained lower after Federal Reserve Chairman Ben S. Bernanke said the U.S. debt ceiling shouldn’t be used as a bargaining chip to force budget cuts. Global stocks gained.

“Prices today have changed more than the facts,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “It’s less clear it’s a domestic data story than it is a technical test of the Treasury market and a rebound or a bit of a bounce in the equity market.”

Yields on 10-year notes climbed 11 basis points, or 0.11 percentage point, to 3.10 percent at 5:14 p.m. in New York, according to BGCantor Market Data prices. The 3.125 percent securities due in May 2021 slid 31/32, or $9.69 per $1,000 face amount, to 100 7/32.

Using the debt limit deadline to force some “necessary and difficult fiscal-policy adjustments” is “the wrong tool for that important job,” Bernanke said in Washington. “We should avoid unnecessary actions or threats that risk shaking the confidence of investors in the ability and willingness of the U.S. government to pay its bills.”

Engineering a default as part of a negotiating strategy “is a risk that doesn’t seem worth taking,” said Larry Dyer, a U.S. interest-rate strategist in New York at HSBC Holdings Plc, one of the 20 primary dealers that trade with the Fed.

Highest Since January

The 10-year note yields increased as much as 12 basis points, the most on an intraday basis since Jan. 20. Yields fell last week to 2.92 percent, this year’s low. Two-year yields climbed five basis points to 0.44 percent today. A drop of more than a point in the 30-year bond pushed the yield to 4.30 percent.

A break in the 10-year note yield above the 3.01 percent bull trend line signals a trend reversal, William O’Donnell, head U.S. government bond strategist at RBS Securities Inc. in Stamford, said in a research note to clients before the government’s economic reports.

“The breakout is likely to be to higher rates,” O’Donnell wrote. The Royal Bank of Scotland Plc unit is a primary dealer.

Retail Sales

Government debt fell today after the Commerce Department reported that retail sales dropped 0.2 percent in May after a 0.3 percent increase in the previous month. The median forecast of 81 economists in a Bloomberg News survey was for a 0.5 percent decrease.

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

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

The Standard & Poor’s 500 Index climbed 1.3 percent. The MSCI Asia Pacific Index rose 1 percent, and the Stoxx Europe 600 Index advanced 0.8 percent.

Delay on Greece

Luxembourg Finance Minister Luc Frieden said an agreement on a second bailout package for Greece may be delayed until July. European leaders had planned to reach a consensus for easing Europe’s biggest debt burden before a summit June 23-24.

U.S. debt slid earlier as China’s statistics bureau reported that industrial production grew 13.3 percent last month, compared with the 13.1 percent median forecast of economists. 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.

Treasuries have rallied this quarter as weak U.S. 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 has dropped to 24 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 purchased $3.2 billion of debt due from December 2012 to October 2013 today under the $600 billion second round of quantitative easing expiring this month.

Commenting that “we’ve done enough” to support the U.S. economy, Dallas Fed President Richard Fisher said yesterday he won’t support a third round of quantitative easing and said the central bank should focus on price stability.

--Editors: Dennis Fitzgerald, Greg Storey

To contact the reporters on this story: Daniel Kruger in New York at; Susanne Walker in New York at

To contact the editor responsible for this story: Dave Liedtka at

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