Treasury yields slump after disappointing retail sales point at consumer weakness

U.S. Treasury yields fell on Friday after a weaker-than-expected retail sales number pointed to potential cracks in a longstanding pillar of the economy. Investors also eyed the spread of COVID-19, the viral outbreak that originated in Wuhan, China.

The 10-year Treasury note yieldTMUBMUSD10Y, -2.26% slid 3.9 basis points to 1.578%, while the 2-year note yieldTMUBMUSD02Y, -0.82% was down 2.2 basis points to 1.420%. The 30-year bond yieldTMUBMUSD30Y, -1.73% slipped 4.3 basis points to 2.035%.

Details within January retail sales numbers drew consternation among investors who said it could point to emerging weaknesses in the consumer, which has helped to power the U.S. economy past global headwinds. The disappointing data added to the bullish trading in government paper on Friday.

Though retail sales climbed by 0.3% last month, the core measure that is used in the government’s calculation of gross domestic product was basically flat in the month.

See: U.S. retailers get off to a sluggish start in 2020 — clothing stores the biggest losers

In other data, import prices were flat in January. Industrial production fell 0.3% last month, while the University of Michigan’s consumer sentiment index came in at 100.9 for February, above its previous reading of 99.8.

On Friday, China reported another sharp increase in the number of people infected with COVID-19. The National Health Commission reported 121 more people had died and there were 5,090 new confirmed cases. This comes after Chinese health officials said they had tweaked the methodology of identifying coronavirus cases.

Coronavirus update: 1,383 deaths, more than 63,000 sickened, Expedia predicts impact beyond Q1

On the monetary policy front, New York Fed President John Williams said Thursday night that the central bank’s rate cuts had positioned the economy for continued growth. Cleveland Fed President Loretta Mester said Friday that weak U.S. business investment activity should get a boosted later this year, but that coronavirus remains a risk to the outlook.

“The [retail sales] core control group was very disappointing at 0% as that feeds directly into GDP and on a six month basis it is negative,” said Maryann Hurley, vice president of fixed-income trading at D.A. Davidson, in e-mailed comments.

“Couple that with the rising delinquencies in credit card debt and auto loans (from the New York Fed) and lack of first time home buyers in the housing sector and it looks like we are seeing problems growing with the consumer,” she said.

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