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10-Year Treasury Yield Hovers Near 1.3% After Better-Than-Expected Retail Sales Data

Source: NYSE

U.S. Treasury yields struggled for direction on Friday as investors weighed data that showed strong retail sales but also growing fears that inflation could weaken the economic recovery.

The yield on the benchmark 10-year Treasury note was little changed at about 1.302%. The yield on the 30-year Treasury bond climbed 1 basis point to 1.932%. Yields move inversely to prices.

Retail sales rebounded 0.6% last month, the Commerce Department said on Friday. Economists polled by Dow Jones had forecast retail sales dropping 0.4%.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 1.1% last month after a downwardly revised 1.4% decrease in May.

However, an early reading on consumer sentiment in July from the University of Michigan came in lower-than-expected 80.8, down from a final number of 85.5 in June.

The survey also showed inflation expectations rising with consumers believing prices will increase nearly 5% in the next year.

"This [retail sales] data sets up a very strong second quarter GDP reading, but financial markets will doubt that trend can continue as inflationary pressures intensify," Oanda market analyst Edward Moya said in a note.

Yields were initially higher after the retail sales report but drifted toward the flatline in late morning trading after the consumer survey was released.

On Thursday, Federal Reserve Chairman Jerome Powell acknowledged in a Senate testimony that inflation was "well above target."

During his second congressional testimony of the week on monetary policy, Powell reiterated the view that higher inflation looked to be transitory, and he also acknowledged that price pressures were well above the central bank's target.

Inflation and employment growth are both determining factors as to when the Fed will tighten its easy monetary policy.

"We've said that we would begin to reduce our asset purchases when we feel that the economy has achieved substantial further progress measured from last December," Powell said Thursday. "We're in active consideration of that now."

Treasury Secretary Janet Yellen told CNBC's "Closing Bell" on Thursday that she believed there would be "several months more of rapid inflation" before price pressures cool off.

"I'm not saying that this is a one-month phenomenon. But I think over the medium term, we'll see inflation decline back toward normal levels," she said. "But, of course, we have to keep a careful eye on it."

There were no auctions held on Friday.

CNBC's Thomas Franck and Jeff Cox contributed to this market report.

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