U.S. government debt rallied on Thursday after data showed a decline in January’s retail sales, sending yields down for a second straight session.
What happened
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The yield on the 2-year Treasury note
BX:TMUBMUSD02Y
declined 1.1 basis points to 4.565%, from 4.576% on Wednesday. -
The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
fell 2.7 basis points to 4.239%, from 4.266% on Wednesday. -
The yield on the 30-year Treasury bond
BX:TMUBMUSD30Y
dropped 2.6 basis points to 4.421%, from 4.447% on Wednesday. - Despite falling on Thursday, all three yields finished at their third-highest levels of this year.
What drove markets
Data released on Thursday showed that retail sales in January fell by 0.8%, more than anticipated and the biggest drop in 10 months. Economists polled by the Wall Street Journal had been expecting a 0.2% decline.
While the report helped to soothe some fears that inflation might reignite, analysts like FHN Financial strategist Will Compernolle cautioned against reading too much into the retail-sales report and said winter weather may have played a role in keeping American shoppers at home.
In other data, initial jobless-benefit claims fell to a one-month low of 212,000 in early January, indicating layoffs remain relatively low, while a pair of regional Fed factory gauges rebounded this month.
Traders priced in an 81.8% probability that the Fed will cut interest rates by at least 25 basis points, from a current range between 5.25% and 5.5%, by June, according to the CME FedWatch Tool. They mostly expect at least three rate cuts by December.
What economists are saying
“The 0.8% [month-over-month] fall in retail sales in January may partly reflect the unwinding of a previous weather-related distortion, but should temper recent suggestions of an economic resurgence. We continue to expect GDP growth to slow in the first quarter,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
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