TREASURIES-Yields rise on strong January retail sales data

(Adds latest figures) By Matt Tracy WASHINGTON, Feb 15 (Reuters) - U.S. Treasury yields jumped higher on Wednesday after data that showed retail sales surged in January, further complicating the Federal Reserve's efforts to slow economic growth and hamper inflation. The yield on 10-year Treasury notes was up 4.6 basis points to 3.8068%, its highest since Jan. 3. The yield on the 30-year Treasury bond was up 4.4 basis points to 3.846%. Retail sales surged 3.0% in January after two straight monthly declines, the Commerce Department said on Wednesday. Economists polled by Reuters had forecast sales would increase 1.8%, with estimates ranging from 0.5% to 3.0%. Traders viewed the data as an influential factor in the Federal Reserve's monetary policy, as it indicates economic strength despite higher borrowing costs. "The Fed's been very clear that they believe they have a ways to go with rates, and that it would be data-dependent," said Michael Lorizio, senior fixed income trader at Manulife Investment Management. "As the data has evolved, now the market is coming back towards the Fed's predications, because the data has been supportive of that," Lorizio added. The gap between yields on U.S. two-year and 10-year notes was last inverted at minus 82 basis points, from Tuesday's peak inversion of minus 91.3 basis points. The yield on two-year notes was up just 0.2 basis points on Wednesday, but at 4.624% was still higher than longer-dated notes. The inversion signals market expectations for a near-term recession. "I think the front end of the curve is somewhat susceptible," said Calvin Norris, portfolio manager and U.S. rates strategist at Aegon Asset Management. "It still strikes me as being a bit overvalued even after the market has shifted from the 5.00% federal funds rate it was pricing in at the beginning of the month." Wednesday's retail sales report follows the release a day earlier of stronger-than-expected consumer price index data, which showed inflation accelerated in January. Headline prices increased 0.5% month-over-month while core prices rose 0.4% month-over-month, in line with forecasts. However, on an annualized basis, both headline and core prices rose slightly more than expected. , Two U.S. central bank officials put investors on notice that borrowing costs may ultimately need to go higher than previously anticipated.

"Inflation is normalizing but it's coming down slowly," Richmond Fed President Thomas Barkin said on Tuesday. "I just think there's gonna be a lot more inertia, a lot more persistence to inflation than maybe we'd all want. The Treasury Department sold $15 billion of 20-year notes on Wednesday with a yield of 3.977%, in line with bidding leading up to the deadline. An auction of $9 billion in 30-year Treasury inflation-protected securities is scheduled for Thursday. February 15 Wednesday 3:31PM New York / 2031 GMT Price Current Net Yield % Change (bps) Three-month bills 4.655 4.7759 -0.010 Six-month bills 4.8175 5.0063 -0.016 Two-year note 99-19/256 4.6245 0.002 Three-year note 99-8/256 4.3482 0.031 Five-year note 97-152/256 4.0403 0.037 Seven-year note 97-84/256 3.9427 0.044 10-year note 97-120/256 3.8068 0.046 20-year bond 100-20/256 3.9939 0.053 30-year bond 96-24/256 3.8456 0.045
DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)
U.S. 2-year dollar swap 33.75 0.75
spread
U.S. 3-year dollar swap 20.00 -0.25
spread
U.S. 5-year dollar swap 7.00 0.50
spread
U.S. 10-year dollar swap -1.25 -0.50
spread
U.S. 30-year dollar swap -40.75 -1.50
spread

(Reporting by Matt Tracy; Editing by Will Dunham)