Treasuries Drop as US Retail Sales Surpass Forecast

Led by five-year notes, Treasuries fell based on a report showing that retail sales surpassed last month’s forecast. This adds to the speculation that the US economy is improving, which in turn will lead to the Federal Reserve increasing interest rates in 2015.

For five-year securities, yields, which are more sensitive to the Federal Reserve’s monetary policy than longer-term peers, hit the highest level in one week. In addition, the benchmark US 10-year yields are heading toward a weekly increase.

On November 19, minutes of the October meeting will be released by the Federal Reserve as policy makers finalizes a stimulus program for the purchase of bonds.

As stated by Tyler Tucci, US government bond strategist at the Royal Bank of Scotland Group PLC’s RBS Securities in Connecticut, this indicates that consumer spending going into the current holiday season is looking good. Tucci, one of the 22 primary dealers trading with the Federal Reserve added that this could provide the fourth quarter GDP a healthy boost, which in turn could be help the Federal Reserve’s story regarding rate hikes.

In addition, five-year note yields pushed forward four basis points of 0.04% point to 1.66% in early morning trading, as shown in data from Bloomberg Bond Trader. The five-year note yields touched 1.67%, the highest since November 7.

Another increase was seen with the benchmark US 10-year note yield, which jumped two basis points to 2.36%, having added seven basis points this week. For the benchmark interest-rate target, the Federal Reserve stayed at zero since 2008 in order to provide support to the economy.

Reported by the Commerce Department, retail sales climbed 0.3%, this after a drop in September of 0.3%. In a Bloomberg survey of 86 economists, median forecast is projected to advance 0.2%. Of the major 13 categories, 11 showed gains that indicate broad-based growth.

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