US yields edge lower after data flurry with Fed on deck

NEW YORK – US Treasury yields slipped on Tuesday in a choppy session, retreating from earlier highs after a flurry of economic data, including a gauge of retail sales as investors braced for the Federal Reserve’s policy statement.

Yields briefly extended gains after the Commerce Department said retail sales rose 0.6% last month, above the estimate of economists polled by Reuters calling for a rise of 0.2% and after an upwardly revised 0.6% advance in July, indicating consumers remain willing to spend.

“There’s this undercurrent of hope out there and it might even be misplaced … where people are thinking maybe we’ll get 50 (basis points) tomorrow and maybe the Fed’s going to be incrementally more dovish than we think, and oh wait, there’s some retail sales, the economy is still pretty good,” said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah.

“To me as an investor, that’s what I want to see. I want to see a Fed that is lowering rates in a measured way because they can afford to as opposed to having to cut 50 because they have to.”

Other data from the Labor Department showed import prices increased 0.3% last month, topping expectations calling for a decline of 0.1%, after a downwardly revised 0.2% rebound in July, hinting that domestic inflation could heat up in the coming months.

The yield on the benchmark US 10-year Treasury note fell 0.6 basis point to 4.028% after rising to a session high of 4.064% after the data.

The Fed will make its policy announcement on Wednesday, and the market has fully priced in a rate cut of at least 25 basis points, with a roughly 4% chance for an outsized 50 basis-point cut, according to CME’s FedWatch Tool.

A federal appeals court in Washington said on Monday that Governor Lisa Cook could remain in her job while litigation over President Donald Trump’s effort to fire her proceeds.

The US Senate confirmed Stephen Miran, currently on leave as the head of the White House’s Council of Economic Advisers, to an open seat on the central bank’s seven-member Board of Governors as Trump attempts to reshape the composition of the Fed.

The yield on the 30-year bond shed 0.9 basis point to 4.646%.

An auction of USD 13 billion in 20-year bonds by the Treasury was seen as solid by analysts, with demand for the debt at 2.74 times the bonds on sale.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 51.6 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 2.5 basis points to 3.51% after earlier climbing to 3.578%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities was last at 2.447% after closing at 2.443% on Monday.

The 10-year TIPS breakeven rate was last at 2.371%, indicating the market sees inflation averaging about 2.4% a year for the next decade.

(Reporting by Chuck Mikolajczak in New York; Editing by Matthew Lewis and Nia Williams)