US Treasury prices crawled lower on Wednesday after retail sales figures proved broadly in line with the market's more pessimistic forecasts and traders went back to their usual business of worrying about inflation.
Lower import costs offered some encouragement to those worried about price increases, but not enough to lift a thinly traded market above the break-even mark.
"People are nervous in front of the inflation report, so there was a willingness to sell into any strength," said David Ging, fixed-income strategist at Credit Suisse First Boston in New York.
By the afternoon, the benchmark 10-year note was down 3/32 in price, nudging its yield up to 4.49 percent from 4.47 percent late on Tuesday. Bonds some support from softness in equities, which were hurt by disappointing forecasts from Intel Corp.
Retail sales fell 1.1 percent in June. Analysts had predicted a 0.6 percent drop, but many in the market were braced for an even worse figure. "People had been looking for a bad number anyway," said Ging.
Excluding autos - a measure analysts tend to consider more meaningful - sales declined 0.2 percent compared with forecasts for a 0.2 percent gain.
"That should help contain inflation worries because the pricing power that corporations have had is a result of strong consumer demand, and if consumer demand begins to weaken then so will pricing power," said Ging.
The looming release of Friday's consumer price index, which many believe will set the tone for interest rate increases from the Federal Reserve, kept the market under pressure.
Yields on the two-year note ticked up to 2.59 percent from 2.56 percent. Likewise, five-year yields inched up to 3.68 percent from 3.65 percent, while the 30-year bond hovered around 5.22 percent.
The retail data confirmed economists' suspicion of a slowdown in spending for the second quarter.
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