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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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Rates need to go up to get to 2% inflation target -Fed's
Waller
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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 mixed data suggested that the world's largest economy is not slowing quickly enough to deter the Federal Reserve from yet again raising interest rates at the next policy meeting.
Data showed U.S. retail sales dropped 1.0% last month. Economists polled by Reuters had forecast a 0.4% decline. But February numbers were revised to show sales falling 0.2% instead of the 0.4% slide. Core retail sales also slipped in March, but they were up in January and February. Despite March's fall, the rise in January and February has placed
consumer spending firmly on pace to expand in the first quarter.
At the same time, U.S.
consumer sentiment edged higher this month to 63.5, according to the University of Michigan's preliminary survey for April. Households though expected inflation to rise over the next 12 months. The survey's reading of one-year inflation expectations rose to 4.6%, from 3.6% in March.
"The pathway to getting inflation down, close to 3% by June or July is possible, but we have oil prices turning back up, goods deflation is probably overly muted," said John Luke Tyner, portfolio manager and fixed income analyst at Aptus Capital Advisors in Fairhope, Alabama.
"The economy seems fairly resilient to the rate hikes. So unless there is a real downturn in employment and jobs, it's pretty unlikely that the Fed is able to get inflation back down to 2%," he added.
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 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. Following 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% late on Thursday. In midday trading, U.S. 10-year yields climbed 7.70 bps to 3.528%. U.S. two-year yields also gained, rising 12.8 bps to 4.105%. The U.S. yield curve deepened its inversion on Friday, suggesting that 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 -58.5 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 12:24 PM New York/1624 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.945 5.0743 0.046
Six-month bills 4.8325 5.0333 0.086
Two-year note 99-147/256 4.1032 0.126
Three-year note 99-198/256 3.8307 0.114
Five-year note 100-20/256 3.6073 0.100
Seven-year note 100-96/256 3.5634 0.083
10-year note 99-204/256 3.5242 0.073
20-year bond 100-56/256 3.8588 0.064
30-year bond 97-196/256 3.7499 0.064
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 29.25 -1.25
spread
U.S. 3-year dollar swap 18.00 -0.50
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 -43.25 0.00
spread
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Consensus grows for Fed rate hike in May Consensus grows for Fed rate hike in May ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Gertrude Chavez-Dreyfuss; Editing by Toby Chopra, John Stonestreet and Mike Harrison)
Messaging: rm://gertrude.chavez.reuters.com@reuters.net))