US yields climb as mixed data affirms rate hike outlook

NEW YORK —

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.

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“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

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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

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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

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Toby Chopra,

John Stonestreet and Mike Harrison)