Treasuries steady

US Treasuries hewed to narrow ranges on Tuesday, slightly weaker ahead of congressional testimony from Federal Reserve Chair Janet Yellen, who is expected to emphasize the central bank's flexibility in policy. Prices on Treasuries were little changed after data showing a smaller-than-expected rise in June US retail sales, including a surprising decline in receipts at automobile dealerships. However, the view of an economy on sounder footing at the end of the second quarter remains intact.
Yellen speaks before the Senate Banking Committee at 1000 EDT (1400 GMT) and again to the House Financial Services Committee on Wednesday as part of its semiannual monetary policy report. "The people that were poised for retail sales to shake things loose got an OK report, and certainly the upward revisions were supportive of higher five-year yields," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
"As for Yellen, I think the more people talk about it, the less they anticipate any fresh insight into Fed policy," Vogel said. "The emphasis will be on maintaining a lot of flexibility of when the Fed decides to move." Retail sales rose 0.2 percent in June after an upwardly revised 0.5 percent advance in May, the Commerce Department reported. Economists polled by Reuters forecast retail sales, which account for a third of consumer spending, to advance 0.6 percent.
The benchmark 10-year US Treasury held steady at 2.55 percent, down just 2/32 of a point in price. The 30-year bond was off 4/32 of a point in price, pushing the yield up to 3.38 percent. Minutes from the Fed's June monetary policy meeting released last week acknowledged strengthening of the US economy but suggested the central bank was unlikely to raise key interest rates until mid-2015.
"While the minutes clearly signalled an end to the asset purchase program in October, they were generally perceived as dovish on the inflation outlook and advocated the use of macro-prudential measures rather than rate hikes to address financial stability issues," analysts at Barclays wrote to clients on Tuesday. "As such, market expectations of Fed rate hikes remain subdued and well below the Fed's own forecasts," the firm said.