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Treasury yields rose Tuesday morning, led by the 6-month bill rate, as rebounding U.S. retail sales for April left the higher-for-longer theme on interest rates intact.
What’s happening
- The 6-month bill rate rose 6 basis points to around 5.2%, according to FactSet.
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.063%
was 4.042%, up from 4.004% on Monday. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.551%
advanced to 3.544% from 3.506% as of Monday. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.888%
rose to 3.883% from 3.841% late Monday.
What’s driving markets
Data released on Tuesday showed that U.S. retail sales rebounded 0.4% in April largely because of strong demand for new autos and higher consumer spending online, pointing to a steady economy. Sales had been forecast to rise 0.8%, based on a Wall Street Journal poll of economists.
Meanwhile, industrial production was up 0.5% in April after two flat months.
Traders continued to jostle for position ahead of more debt-ceiling talks, due to start at 3 p.m. ET Tuesday, according to the White House. Investors are struggling to gauge the likelihood of a technical default by the U.S. government and what impact it may have on the debt markets and central bank policy. Treasury Secretary Janet Yellen issued a fresh warning on Tuesday, saying the economy “hangs in the balance” if lawmakers don’t act.
As of Tuesday, markets were pricing in an 78.7% probability that the Fed will leave interest rates unchanged at a range of 5% to 5.25% on June 14, and a 21.3% chance of a quarter-of-a-percentage-point rate hike, according to the CME FedWatch tool. The central bank is mostly expected to leave its fed funds rate target between 5%-5.25% in July, according to 30-day Fed Funds futures.
Data released Tuesday from China showed the world’s second biggest economy was not rebounding from its Covid slowdown as strongly as hoped. China’s industrial production rose 5.6% in April from a year earlier, below forecasts. Retail sales grew 18.4% from a year earlier, but also missed expectations.
What analysts are saying
“There is nothing in this [U.S. retail sales] series that will take a June rate hike off the table — although we are doubtful one comes to fruition,” BMO Capital Markets rates strategist Ian Lyngen said in a note. “Instead, the Fed will err on the side of retaining terminal for as long as possible as economic headwinds continue to mount but remain contained for the time being.”
