NEW YORK, Jan 14 (Reuters) - U.S. Treasury yields were
higher on Friday in choppy trade as a batch of soft economic
data on consumer and manufacturing activity was seen as not
enough to derail the Federal Reserve's path of tightening
Yields headed lower after the Commerce Department said
retail sales dropped 1.9% in December after a 0.2% rise in the
prior month, well short of the unchanged forecast, as Americans
grappled with a sharp climb in COVID-19 cases and a shortage of
However, other data on import prices fell last month in part
due to a decline in the cost of petroleum products, hinting that
the worst of high inflation could be at an end.
Yields reversed course, however, and moved higher after the
Fed said manufacturing output dropped 0.3% in December, shy of
the estimate calling for a 0.5% rise.
The softer data was likely not enough to significantly alter
expectations for the Fed's policy path, with expectations for an
interest rate hike of at least 25 basis points at the March
meeting nearing 90%, according to Refintiv data.
"Most of the Fed governors and people that sit on the board
seem to be pretty emphatic about raising rates at least three,
if not four, times this year," said Tom di Galoma, managing
director at Seaport Global Holdings in New York.
"I dont know how they step away from that just because we
got a weak retail sales number."
Di Galoma noted that with the 10-year yield moving to levels
not seen since January 2020 at 1.808% last week, it had
encouraged buyers to step in this week.
The yield on 10-year Treasury notes was up 6.4
basis points at 1.773%. After rising about 25 basis points last
week, the 10-year yield is just barely higher for the week.
Fed officials on Friday continued to comment on the need to
tighten policy as New York Fed President John Williams said it
is "sensible" for the central bank to begin raising rates this
year and that policymakers will not wait as long as they have in
the past to begin reducing its bond holdings.
San Francisco Federal Reserve Bank President Mary Daly put
the main blame for high inflation on COVID-19, and said the Fed
needs to raise rates to dampen demand.
The yield on the 10-year continued its move higher following
the University of Michigan's preliminary Consumer Sentiment
reading for January, which dipped to 68.8 from December's final
reading of 70.6. One-year inflation expectations ticked up to
4.9% from the prior 4.8%.
The yield on the 30-year Treasury bond was up
6.1 basis points at 2.115%.
A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 80.5 basis points from a low of 79.9 on
The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 6.8 basis
points at 0.967% after 0.971%, its highest since February 28,
The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.832%, after closing at 2.817% on Thursday.
The 10-year TIPS breakeven rate was last at
2.477%, indicating the market sees inflation averaging about
2.5% a year for the next decade.
The U.S. dollar 5 years forward inflation-linked swap
, seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed's
quantitative easing, was last at 2.374%.
(Reporting by Chuck Mikolajczak
Editing by Marguerita Choy and Jonathan Oatis)