Bond yields edge higher

US Treasuries yields edged higher on Thursday on the view that a strong US retail sales figure on Friday could increase the potential for an earlier-than-expected rate hike from the Federal Reserve. Benchmark 10-year Treasuries yields were at their highest in over a month, while 30-year yields hovered at their highest in roughly a month. Analysts said a strong retail sales figure could increase expectations of a more hawkish tone from the Fed at its meeting on September 16-17.
"If it comes in stronger, the market will continue to ignore weak payrolls and focus on all the positive data we've seen," said Richard Gilhooly, an interest rate strategist at TD Securities in New York. He said a strong reading would likely drive rates higher ahead of the Fed's meeting. Economists polled by Reuters expect retail sales to have risen 0.6 percent in August, above July's flat reading.
Yields on 30-year Treasuries fell earlier in the session after a solid 30-year debt auction and on concerns surrounding US military involvement in Iraq and Syria and new planned sanctions against Russia. The move was short-lived, however, as attention shifted toward the upcoming retail sales data. The Treasury sold $13 billion in 30-year bonds at a higher yield than August's 3.224 percent. Indirect bidders such as foreign central banks and direct bidders such as large money managers bought slightly smaller shares of the bonds compared to August, but analysts said demand was still robust. "It reflects the idea that there are still risks out there, both geopolitically and economically," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee, in reference to the strong demand. He cited US airstrikes and new planned sanctions on Russia as two risks.
President Barack Obama said Wednesday he had authorised US airstrikes for the first time in Syria and more strikes in Iraq in a broad escalation of a campaign against the Islamic State militant group, raising concerns of a long-lasting war. Obama said Thursday the US will join the European Union in imposing tougher sanctions on Russia's financial, energy and defence sectors after Moscow sent troops into eastern Ukraine last month, and will provide details on Friday.
Traders still took profits on longer-dated Treasuries ahead of Friday's data, Vogel said. US Labour Department data showing initial claims for state unemployment benefits increased to 315,000 in the latest week, above economists' expectations, limited selling pressure on Treasuries, analysts said. US 10-year Treasury notes were last down 4/32 in price to yield 2.55 percent, from a yield of 2.54 percent late on Wednesday. US 30-year Treasury bonds were last down 6/32 to yield 3.28 percent, from a yield of 3.27 percent late on Wednesday.