February 14, 2019 / 2:18 PM / 10 months ago

TREASURIES-Yields fall after weak retail sales data

    * Retail spending fell in December
    * Germany narrowly avoids recession
    * U.S., China trade talks in focus

    By Karen Brettell
    NEW YORK, Feb 14 (Reuters) - U.S. Treasury yields fell on
Thursday after data showed that U.S. retail sales recorded their
biggest drop in more than nine years in December, suggesting a
slowdown in economic activity at the end of 2018.
    The Commerce Department said on Thursday that retail sales
tumbled 1.2 percent, the largest decline since September 2009
when the economy was emerging from recession.             
    “It calls into question the underlying strength of the
domestic consumer and in particular this kind of lays the
groundwork to confirm the Fed’s bias in pausing the tightening
cycle,” said Jon Hill, an interest rate strategist at BMO
Capital Markets in New York.
    Benchmark 10-year yields have fallen from seven-year highs
reached in October on concern about weak international growth
and the possibility of a slowing U.S. economy. These fears have
also led the Federal Reserve to adopt a far more dovish outlook
on further interest rate increases.
    Hill added that the Fed funds market is now pricing for the
possibility of a rate cut in late 2019 or early 2020.
    The U.S. data comes after Germany’s gross domestic product
came in even lower than economists’ expectations in the fourth
quarter of last year, with the country narrowly avoiding
    U.S. 10-year notes             gained 10/32 in price to
yield 2.648 percent, down from 2.706 percent on Wednesday. They
are down from 3.261 percent in October.
    The yields rose to one-week highs on Wednesday after data
showed that core consumer price inflation, which excludes the
volatile food and energy components, gained 0.2 percent in
January, easing some concerns about a drop in inflation.
    Consumer sentiment data on Friday will be the next focus for
further signals about the U.S. economy's strength.
    Investors are also focused on efforts to avert another
partial U.S. government shutdown and on trade talks between the
United States and China.
    The U.S. Congress on Thursday aimed to end a dispute over
border security with legislation that would ignore President
Donald Trump's request for $5.7 billion to help build a wall on
the U.S.-Mexico border but avoid a shutdown.             
    U.S. Treasury Secretary Steven Mnuchin said he was looking
forward to trade talks with China on Thursday, as discussions in
Beijing moved to a higher level in a push to de-escalate a
tariff war ahead of a March 1 deadline for a deal.             

 (Editing by Susan Thomas)
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