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Treasury yields edged lower Wednesday as investors re-assessed January retail sales data and prepared to pore over the minutes of last month’s Federal Reserve meeting.
Tensions over Ukraine also remained in focus as NATO’s secretary-general said there was no sign of a de-escalation by Russia even after Moscow said it had continued to withdraw military units from the border.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.036%
was at 2.018%, down from 2.044% at 3 p.m. Eastern on Tuesday. Tuesday’s level was the highest yield for the maturity since July 30, 2019, based on 3 p.m. levels, according to Dow Jones Market Data. Yields and debt prices move opposite each other. -
The 2-year Treasury note yield
TMUBMUSD02Y,
1.551%
was 1.556%, compared with 1.567% on Tuesday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.346%
stood at 2.326%, down from 2.36% late Tuesday.
What’s driving the market?
Data released Wednesday showed that retail sales jumped 3.8% in January as Americans bought more cars, furniture, consumer electronics and other goods. The increase was the biggest since last March, when Americans spent a good chunk of their stimulus money from the government. Economists polled by The Wall Street Journal had forecast a 2.1% gain.
Various analysts pointed out that seasonal adjustments may have played a large role and stimulus checks won’t be coming in the current quarter — both of which suggest some underlying weakness in the pace of spending.
In other data releases, U.S. industrial production surged 1.4% in January compared with a 0.5% consensus forecast, and capacity utilization jumped to 77.6% in January from 76.6% in the prior month.
Meanwhile, Ukraine remains on the radar. On Wednesday, Russia, which has about 150,000 soldiers around Ukraine, said it withdrew more troops, but NATO Secretary-General Jens Stoltenberg said there were no signs of Russia pulling back. U.S. President Joe Biden said on Tuesday that the U.S. had not verified that Russian units had returned home and that an invasion remained “distinctly possible.”
Investors have also turned their attention back to persistent inflation pressures and expectations the Federal Reserve will begin lifting interest rates aggressively and otherwise tightening monetary policy. Still ahead for Wednesday are the minutes of the Fed’s January meeting, due at 2:30 p.m. Eastern time, which will be scoured for clues to the pace and scope of rate hikes and how the central bank is thinking about the eventual reduction of its nearly $9 trillion balance sheet.
What do analysts say?
“In short, while the monthly retail sales report looks good on the surface, the data over the last two months paints a picture of a much more modest pace of spending,” said Omair Sharif, founder of Inflation Insights. “So, while Q1 GDP estimates will likely go up given the fact that the headline gain today beat expectations, the most recent data points from retail sales suggest some underlying slowing in the pace of spending on goods.”
