10-year Treasury yield falls below 2.30%
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U.S. Treasurys saw early buying Friday, driving yields firmly lower, as a weak report on retail sales and inflation raised fresh questions about the pace of the Federal Reserve's plans to normalize monetary policy by lifting rates and shrinking its asset portfolio.
The benchmark 10-year Treasury yield fell 5.1 basis points to 2.296%. While the 2-year note yield slipped 3.2 basis points to 1.335%. The yield on the 30-year bond, or the long bond, fell 3.1 basis points to 2.888%. Bond prices move in the opposite direction of yields.
Inflation in June came in flat (http://www.marketwatch.com/story/inflation-goes-nowhere-in-june-cpi-shows-2017-07-14), a sign that consumer prices had trouble sustaining its upward momentum. But investors were more troubled by the weaker-than-expected reading for June's retail sales, which fell 0.2%. Economists polled by MarketWatch had forecast an 0.1% increase. Market participants said the lack of spending from U.S. shoppers made it difficult to envision inflation approaching the Fed's 2% target.
See: U.S. retail sales fizzle out in June (http://www.marketwatch.com/story/us-retail-sales-fizzle-out-in-june-2017-06-14)
"The reaction in the bond market, it's more of a function of retail sales. The consumer is employed, but retail sales aren't going very fast. They don't seem to want to spend money," said John Bredemus, investment strategist for Allianz Investment Management.
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After taking a deeper dive into the report, Thomas Simons, seniors money market economist at Jefferies, said the retail figures offered few reasons for optimism about economic outlook, given the muted spending and sluggish inflation reports. He said it was difficult to find a "positive way to spin the data." Even excluding for car sales, which have declined recently (http://www.marketwatch.com/story/us-car-sales-declined-in-june-2017-07-03), retail sales figures still posted a 0.2% drop.
The University of Michigan survey will provide its latest snapshot of consumer confidence at 10 a.m.
Traders have put heavy attention on inflation and factors that could be holding it down after Fed speakers including Fed. Gov. Lael Brainard said (http://www.marketwatch.com/story/dallas-feds-kaplan-becomes-third-fomc-member-to-question-need-for-more-rate-hikes-2017-07-13)the deterioration in consumer prices could give them pause on a rate hike this year. During her congressional testimony this week, Fed Chairwoman Janet Yellen repeated her belief (http://blogs.marketwatch.com/capitolreport/2017/07/12/live-blog-and-video-of-yellens-testimony-before-house-panel/?mod=MW_story_latest_news)that temporary factors were keeping a lid on consumer prices, but said she would watch them "very closely." Some market participants took this as a small concession that the weakening economic data may not just be transitory.
Investors will also watch if other Fed speakers will highlight similar worries.
Meanwhile, Chicago Fed President Charles Evans, also a voting member of the rate-setting Federal Open Market Committee, will post his speech originally intended for Thursday at 1 p.m. As one of the most dovish members on the panel, he is expected to mention how consumer prices may weigh on the prospect for monetary tightening.
(END) Dow Jones Newswires
July 14, 2017 10:02 ET (14:02 GMT)