Yields rise as retail sales improve, stocks rebound

Shorter-dated US Treasury yields rose on Monday as a closely watched segment of February’s retail sales report beat economists’ expectations, before the Federal Reserve this week is expected to keep interest rates on hold.

A stock market rally also reduced safe haven demand for US government debt.

Yields hit a session high after the Control Group in February’s retail sales data rose 1% during the month. Trading was choppy, however, as headline retail sales posted only a 0.2% gain, below economists’ estimates.

“You can make either positive or negative trends out of it. Much of the swings were in non-store retailers. They were unusually weak last month. They were unusually strong this month. It probably just evens out,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

Other data showed that factory activity in New York State plummeted this month by the most in nearly two years.

The yield on benchmark US 10-year notes was last up 0.2 basis points on the day at 4.31%.

The 2-year note yield, which is highly sensitive to interest rates, rose 4 basis points to 4.055% and reached 4.065%, the highest since February 28.

The yield curve between two-year and 10-year notes US2US10=TWEB flattened by around four basis points to 25 basis points. This flattening is reflecting some concerns that the Fed may be too slow to cut rates as the economy slows.

Investors remain nervous that new trade tariffs will dent the economy while also pushing up prices.

US President Donald Trump said he has no intention of creating exemptions on steel and aluminum tariffs and said reciprocal and sectoral tariffs will be imposed on April 2.

US Treasury Secretary Scott Bessent played down recent stock market weakness in an interview on Sunday, saying corrections were healthy and that markets “will do great” if the administration puts into place good tax policy, deregulation and energy security.

That dashed some hopes that the government would change policies as a result of market moves.

The Fed is expected to hold interest rates steady when it concludes its two-day meeting next Wednesday, and Chair Jerome Powell is likely to repeat recent comments that the US central bank is in no rush to resume rate cuts.

“Powell kind of sealed the deal with his Friday speech before the blackout period, and the message there was – hey, it’s too soon to really think about protecting the economy with rate cuts,” Le Bas said. “There’s no reason for that to shift in such a short period of time.”

Fed funds futures traders see the US central bank as most likely to resume rate cuts in June. Fed policymakers will update their interest rate and economic projections this week.

Traders are also watching discussions over a possible Russia-Ukraine peace deal.

Trump said he plans to speak to Russian President Vladimir Putin on Tuesday and discuss ending the war in Ukraine, after positive talks between US and Russian officials in Moscow.

The Treasury will sell USD 13 billion in 20-year bonds on Tuesday, and USD 18 billion 10-year Treasury Inflation-Protected Securities on Thursday.

(Reporting By Karen Brettell; Editing by Toby Chopra and Nick Zieminski)