October 15, 2018 / 3:06 PM / 10 months ago

TREASURIES-U.S. yields edge up as retail sales rise less than forecast

    * U.S. retail sales rise 0.1 pct in September, less than
    * Rising bond supply seen bearish for Treasuries market 

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Oct 15 (Reuters) - U.S. Treasury yields rose
slightly on Monday as the outlook for a solid U.S. economy was
tempered by weaker-than-expected data on domestic retail sales
and volatility in the stock market stemming from worries about
rising borrowing costs.
    Rising loan rates, which make it more costly for consumers
to buy a car or home and for companies to finance their debt,
have spurred concerns about the durability of the economic
expansion, and whether the Federal Reserve may consider stopping
raising interest rates after 2018, analysts said.
    Still, some fund managers believe Treasury yields could test
higher levels before year-end as the economic fundamentals have
been buoyed by the massive tax cut enacted last December.
    Last week, the benchmark 10-year Treasury yield
reached 3.261 percent, which was last seen in May 2011, while
the 30-year yield hit a four-year peak at 3.446
    "This market selloff is far from over. The economy is still
very strong," said Bryce Doty, senior portfolio manager at Sit
Fixed Income Advisors LLC in Minneapolis.
    On Monday, the government said retail sales edged up 0.1
percent last month, which was below a 0.6 percent forecast among
analysts polled by Reuters. The modest headline figure was
mitigated by more upbeat details that suggest resilience in
consumer spending.
    Doty reckoned the meager gain in store sales will likely
accelerate into year-end due to holiday-related demand.  
    Another long-term driver of U.S. yields is the growing
government debt supply which is expected to increase in the
coming decade to fund a rising federal deficit due to the tax
cut and a deal to increase government spending.
    Investors picked up much of last week's $74 billion in
Treasuries supply, but it is unclear whether their appetite for
U.S. debt will persist as supply continues to grow.
    This week, the Treasury Department will debut a two-month
bill issue on Tuesday and sell $5 billion in 30-year Treasury
Inflation Protected Securities on Thursday.
    Asset managers scaled back their bullish positions in
10-year Treasuries last week, while hedge funds reduced their
bearish 10-year bond bets, according to data from the Commodity
Futures Trading Commission released on Friday.
    At 10:55 a.m. (1455 GMT), the yield on 10-year Treasury
notes was up nearly 2 basis points at 3.158 percent, while the
30-year yield stepped up 2 basis points to 3.335 percent.
    Wall Street's three main indexes were
mixed after opening lower. 
October 15 Monday 10:56AM EDT/ 1456 GMT
 US T BONDS DEC8               138-13/32    -0-10/32   
 10YR TNotes DEC8              118-56/256   -0-32/256  
                               Price        Current    Net
                                            Yield %    Change
 Three-month bills             2.2375       2.2808     0.010
 Six-month bills               2.4          2.4624     0.020
 Two-year note                 99-204/256   2.8571     0.017
 Three-year note               99-206/256   2.9435     0.016
 Five-year note                99-98/256    3.0098     0.016
 Seven-year note               99-96/256    3.1004     0.019
 10-year note                  97-164/256   3.1557     0.015
 30-year bond                  93-180/256   3.3347     0.019
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
 U.S. 2-year dollar swap        19.25         1.00     
 U.S. 3-year dollar swap        16.75         0.50     
 U.S. 5-year dollar swap        12.25         0.25     
 U.S. 10-year dollar swap        4.25         0.25     
 U.S. 30-year dollar swap      -10.75        -0.25     

 (Reporting by Richard Leong; Editing by Andrea Ricci)
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