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U.S. retail sales, import prices fall more than expected
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U.S. rate futures price in 25-bp hike in May
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Fed's Waller says rates to go higher
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Fed's Goolsbee says U.S. recession possible this year
By Gertrude Chavez-Dreyfuss NEW YORK, April 14 (Reuters) - U.S. Treasury yields rose on Friday after data showed retail sales fell more than expected in March, though the February numbers were revised to indicate sales overall were not as weak as previously reported. The report did not alter expectations that the Federal Reserve will raise interest rates by 25 basis points (bps) at its next meeting. Comments by Fed Governor Christopher Waller on Friday, saying higher borrowing costs were needed to restore inflation to the Fed's 2% target, further raised the rate-increase outlook and
reduced bets of easing this year .
Data showed
retail sales dropped 1.0% last month. Economists polled by Reuters had forecast a 0.4% drop. Data for February was revised to show sales falling 0.2% instead of 0.4%.
"The market was poorly positioned before the retail sales number. Traders were expecting an even bigger decline than what the actual number was," said Brian Reynolds, chief market strategist, at Reynolds Strategy in Massachusetts.
"Investors are so negative on the economic situation. The economy is slowing, but it's not slowing as much as investors feared. It means that Fed rate hike in May is on the table."
Data also showed
U.S. import prices fell more than expected in March, resulting in the biggest year-on-year decline since mid-2020, offering further evidence that inflation pressures are subsiding.
Folowing the data, U.S. rate futures have priced in a more than 80% chance of a 25 bps hike next month. That probability was about 70% lFollowinghursday.
In midmorning trading, U.S. 10-year yields climbed 4.9 bps to 3.498%. U.S. two-year yields also gained, rising 10.7 bps to 4.086%. The U.S. yield curve's deepening inversion suggests traders believe there could be another hike coming after the May meeting. The spread between the U.S. two-year and 10-year yields widened to -58.4 bps , from -52.80 bps late on Thursday.
The inversion of this curve typically signals a looming recession, predicting eight of the last nine slowdowns.
Chicago Fed President Austan Goolsbee said on Friday a
recession in the United States this year was certainly feasible as the Fed's rate-hike moves fully filter through the economy.
April 14 Friday 9:52 AM New York / 1352 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.9275 5.0561 0.028
Six-month bills 4.8275 5.028 0.081
Two-year note 99-157/256 4.0821 0.105
Three-year note 99-214/256 3.8084 0.091
Five-year note 100-54/256 3.5779 0.071
Seven-year note 100-144/256 3.5328 0.053
10-year note 100-8/256 3.4958 0.045
20-year bond 100-168/256 3.8272 0.032
30-year bond 98-88/256 3.7171 0.031
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 28.50 -2.00
spread
U.S. 3-year dollar swap 17.75 -0.75
spread
U.S. 5-year dollar swap 7.00 -0.50
spread
U.S. 10-year dollar swap -1.50 -0.25
spread
U.S. 30-year dollar swap -43.50 -0.25
spread
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Toby Chopra and John Stonestreet)
Messaging: rm://gertrude.chavez.reuters.com@reuters.net))