Shorter dated US Treasuries slipped in volatile trade on Wednesday after the second day of surprisingly strong data fuelled expectations of a robust economic recovery. Firmer-than-expected data on consumer prices and industrial output followed Tuesday's up-side surprise in retail sales figures.
The data cast some doubt on the widely held view that the Federal Reserve would be able to keep interest rates low for a long time as the economy recovers from the worst recession in decades. Two-year notes, which respond to changing views on Fed monetary policy, were down 2/32 in price, yielding 0.97 percent versus Tuesday's close of 0.94 percent. Five-year notes fell 3/32, yielding 2.42 percent versus Tuesday's close of 2.40 percent.
The bond market was also whipped around due to hedging amid a busy corporate issuance calendar. At the long end, the 30-year Treasury bond was particularly volatile. It was last up 10/32 in price, yielding 4.24 percent versus Tuesday's close of 4.26 percent. Earlier in the session, 30-year bonds were up more than a point on the day but then were down nearly as much after the data deluge. Benchmark 10-year notes were up 2/32, yielding 3.45 percent versus Tuesday's close of 3.46 percent.
US investment-grade corporate bond sales soared to $14.75 billion on Tuesday, the second largest day this year, contributing to a $17.75 billion for the week so far, according to IFR, a Thomson Reuters service. The bond market is on track for its first week of losses after a five-week streak of gains.
Rallying even in the face of stronger stocks, which usually sap the strength of safe-haven Treasuries, investors have bought bonds on expectations the economy is set for only a gradual and fragile recovery from the worst recession in decades. That also leads to perceptions the Federal Reserve would be cautious about raising interest rates from their current levels near zero.