US Treasury debt prices trickled lower in thin trade on Wednesday as a two-week rally that had taken benchmark yields to two-month lows appeared to run out of steam. In the process, benchmark 10-year notes eased 9/32 for a yield of 4.38 percent, up from 4.34 percent on Tuesday.
"The Treasury market seems to be in a world of its own, almost ignoring strong growth data we've had recently," said Joseph Di Censo, fixed-income strategist at Lehman Brothers. "But once people are back next week, I wouldn't be surprised if we had another 15 to 20 basis point sell-off."
With many investors away for the holidays, trading volume was wafer thin and dealers spent their time postulating on the meaning of an inverted yield curve.
Short-term interest rates surpassed their long-term counterparts for the first time in five years on Tuesday.
Such an event has often presaged economic turbulence, and analysts were split as to whether that signal remained valid this time.
With two-year notes off 1/32 and yielding 4.37 percent, the spread between 10- and two-year debt inched back into positive territory.
But some in the market expect the inversion trend to persist as the Federal Reserve approaches the end of its monetary tightening cycle, which investors believe will happen sometime early next year.
Economic data released on Wednesday did little to sway analysts' views on the Fed, with some forecasting just one more rate hike in January but others thinking the central bank might move again in March.
The Conference Board's index of consumer confidence climbed to 103.6 in December from 98.3 in November. Analysts had been looking for a more modest gain to 101.8.
In addition, two reports on weekly chain store sales suggested last-minute shoppers allowed US retailers to breathe a sigh of relief after a lackluster start to holiday shopping.
Redbook Research said its data, which is based on estimates from retailers, showed sales increased 3.7 percent in December compared with the same month last year, although they were flat from November.
A separate report from the International Council of Shopping Centers and UBS Securities LLC showed sales rose 2.8 percent last week, following a 2.4 percent gain a week earlier.
Mostly unaffected by the figures, five-year notes were down 5/32 for a yield of 4.33 percent. The 30-year bond lost 18/32 to yield 4.54 percent.