TREASURIES-Yields rise as retail sales beat expectations, consumer confidence improves

BY Reuters | ECONOMIC | 10/16/20 11:09 AM EDT
    (Adds consumer confidence data, updates prices)
    By Karen Brettell
    NEW YORK, Oct 16 (Reuters) - U.S. Treasury yields rose on
Friday after data showed U.S. retail sales increased more than
expected in September, while consumer confidence improved in
early October.
    Retail sales rose 1.9% last month as consumers bought motor
vehicles and clothing, dined out and splashed out on hobbies,
the Commerce Department said on Friday. That followed an
unrevised 0.6% increase in August. Economists polled by Reuters
had forecast retail sales would rise 0.7% in September.

    U.S. consumer sentiment also inched up to a seven-month high
in early October as an uptick in expectations for better
economic prospects in the future outweighed a reversal in
assessments of current conditions.
    ?The economy is gradually improving, (but) the pace of that
recovery has been modest and is likely to continue to be
modest,? said Bill Merz, head of fixed income research at U.S.
Bank Wealth Management in Minneapolis. ?There are still a lot of
reasons why long-end Treasury yields shouldn?t rise
significantly for a sustained period in the near-term.?
    Other data on Friday showed U.S. factory production
unexpectedly fell in September, suggesting manufacturing's
recovery was slowing heading into the fourth quarter.

    Benchmark 10-year note yields were last at
0.741%, after moving as high as 0.757% on the retail sales data.
The yields have traded in a tight range from 0.50% to 0.80%
since April, with the exception of a brief spike to 0.96% in
early June.
    Treasury yields have held near historical lows as the
Federal Reserve pledges to keep interest rates zero-bound for
years and continues to purchase large amounts of Treasuries and
mortgage-backed debt.
    Inflation expectations also remain modest as the economy
continues to be weighed down by the effects of COVID-19.
    Investors are focused on whether lawmakers are likely to
pass new fiscal stimulus before the Nov. 3 presidential
    U.S. President Donald Trump on Thursday said he is willing
to raise his offer of $1.8 trillion to get a deal with House of
Representatives Democratic Speaker Nancy Pelosi, which is likely
to raise concerns among his fellow Republicans in the Senate.

    Democrat challenger Joe Biden is expected to support a
larger stimulus bill if he wins next month?s election.

      October 16 Friday 10:57AM New York / 1457 GMT
 US T BONDS DEC0               175          -0-8/32
 10YR TNotes DEC0              139-20/256   -0-12/25
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.1          0.1014    -0.003
 Six-month bills               0.115        0.1167    0.000
 Two-year note                 99-247/256   0.1431    0.002
 Three-year note               99-214/256   0.1801    0.003
 Five-year note                99-174/256   0.3153    0.001
 Seven-year note               99           0.5217    0.005
 10-year note                  98-232/256   0.7406    0.007
 20-year bond                  97-16/256    1.2934    0.011
 30-year bond                  96-92/256    1.5274    0.018

                               Last (bps)   Net
 U.S. 2-year dollar swap         8.75        -0.25
 U.S. 3-year dollar swap         8.50         0.00
 U.S. 5-year dollar swap         8.00         0.25
 U.S. 10-year dollar swap        3.00        -0.25
 U.S. 30-year dollar swap      -35.25        -1.00

 (Reporting by Karen Brettell, Editing by Andrea Ricci and Chris

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

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