US Treasury yields rise as retail sales rise in June

US Treasury yields rose from one-week lows on Friday after data showed retail sales unexpectedly rose in June, although doubts about the strength of the economic recovery and the Fed’s cautious federal policy were seen as a limit to short-term yields.

Demand for goods remained strong even as spending shifted to services, reinforcing expectations of an acceleration in economic growth in the second quarter.

The Retail sales reboundedThe Commerce Department said on Friday it was up 0.6% last month. May data was revised down to show that sales fell 1.7% instead of 1.3% as previously reported.

Justin Lieder, interest rate strategist at Cantor Fitzgerald in New York, said the data was “a little bit better.” However, yields are still close to last week’s lows.

Yields have fallen since Federal Reserve Chairman Jerome Powell pledged on Wednesday and Thursday to provide “strong support” to the US economic recovery, indicating that he does not see the need to accelerate the withdrawal of support for the US economy due to the recent increase in inflation.

“I think most people were expecting higher returns right now, just from reopening the economy…but Powell is very pessimistic so he’s really tough. He doesn’t seem ready to go back to high levels. Year-to-date returns,” Leder said.

The yield on the benchmark 10-year note rose three basis points to 1.331%, to stay above five-month lows of 1.250% hit last week and below the 1.776% touched in March.

The yield curve between the two-year and 10-year notes has fallen to 108 basis points.