* U.S. retail sales unexpectedly drop for second month in
* U.S. producer prices record biggest drop in 10 months
* Cyprus bailout worries rise again
* Consumer sentiment reading falls to lowest since July 2012
By Luciana Lopez
NEW YORK, April 12 Prices for U.S. Treasuries
rose on Friday as disappointing U.S. retail and consumer data
suggested economic weakness, adding to investor worries about a
bailout for euro zone member Cyprus.
U.S. retail sales contracted in March for the second time in
three months, a sign the American economy may have stumbled at
the end of the first quarter. The 0.4 percent drop surprised
analysts, who had expected sales would be flat.
In addition, U.S. producer prices dropped the most in 10
months in March as the cost of gasoline tumbled.
"A combination of soft activity and extremely benign
inflation data is a good signal for U.S. Treasuries, which are
poised to rally on these and similar data over the coming
months," said Rob Carnell, chief international economist at ING
"A return to talk about downscaling of Fed QE (quantitative
easing) does not look imminent until this soft patch is past -
which we think will be by mid-year."
Analysts fretted that future retail sales figures could be
weak, as well.
"The worry is the full reaction to the expiration of the
payroll tax cut and to the sequester budget cuts won't be
evident until sometime this quarter," said Cary Leahey, senior
advisor at Decision Economics.
Consumers were also tempering their views on the economy.
The Thomson Reuters/University of Michigan's preliminary
reading on the overall index of consumer sentiment fell to 72.3
in April, the lowest since July 2012 and below economists'
"For bonds, it's a win if Bernanke and the Fed remain
all-in," said Robbert Van Batenburg, director of market
strategy, Newedge Usa Llc.
Nor was news from across the Atlantic more soothing to
Cypriot President Nicos Anastasiades told reporters in
Nicosia on Friday that he would send a letter to European
Commission President Jose Manuel Barroso and European Council
President Herman Van Rompuy seeking extra assistance for Cyprus,
given the bad economic situation of the island.
Euro zone finance ministers said, however, there were no
plans or requests beyond the 10 billion euros of loans already
on the table.
The 10-year note last traded up 19/32 to yield
1.728 percent, compared with 1.7913 percent late on Thursday.
The 30-year bond last traded up 1-17/32 to yield
2.921 percent, compared with 2.9968 percent late on Thursday.
Adding to support for Treasuries are expectations that
Japanese investors will buy U.S. government debt on the Bank of
Japan's $1.4 trillion stimulus program.
The BOJ program helped set off last week's Treasuries rally
as traders bet Japanese banks, insurers and pension banks would
increase their purchases of Treasuries and other higher-yielding
While the expected surge has not materialized, but analysts
said the money could still flow in over time.
Nevertheless, yields could resume their advance later this
year if the U.S. economy picks up steam, which could in turn
prompt the Federal Reserve to pare back or even end its $85
billion-per-month buying of Treasuries and mortgage-backed
Policymakers have sent mixed signals recently over when the
central bank might slow or stop the stimulus program, meant to
prop up the labor market. Investors are now trying to gauge when
a consensus could emerge at the Fed on tapering its asset
As part of that stimulus, the Fed on Friday bought $1.48
billion of Treasuries maturing between February 2036 and