Treasuries-US bonds dip as data-driven rally fades, Iran tension lifts oil

Elsewhere in the Treasury market, the yield curve steepened following the retail sales data, with the gap between 2-year and 10-year yields hitting 52.9 bps US2US10=TWEB, the widest spread since May. It was last at 52.2 bps, compared with 49.8 bps late Thursday. The curve showed a bear steepener, a scenario in which long-term yields are rising faster than shorter-dated ones, suggesting a pickup in inflation expectations. Away from retail sales, investors remained worried about the Strait of Hormuz. Transit through the key waterway appeared to grind to a near standstill on Friday after two more ships were attacked there and the United States said it could maintain a naval blockade of Iran indefinitely. Benchmark Brent futures LCOc1 and U.S. West Texas Intermediate crude futures CLc1 were both up slightly at about $87 and $81 a barrel respectively. While Middle East tensions remained a key focus for investors, weaker-than-expected U.S. retail sales data also shaped trading. Data showed that U.S. retail sales fell 0.6% last month after an unrevised 0.2% gain in June, falling for the first time in nine months as the boost from big tax refunds eased. The unexpected decline in retail sales reported by the Commerce Department on Friday, analysts said, was also payback after Amazon pulled forward its Prime Day event to June from July, with other retailers offering competing promotions. A retreat in gasoline prices also weighed on receipts at service stations. "Most of the weakness seems to be a timing issue, with Amazon's Summer Prime Day moving forward a few weeks into June this year," wrote Tom Simons, chief U.S. economist at Jefferies in New York, in a research note after the data. The Amazon factor caused nonstore retailer sales to drop 2.2%. "Looking past this drag, the numbers aren't quite as bad as they seem." Following the retail sales report, U.S. rate futures priced in just a 29% chance of a rate hike at next month's policy meeting, down from 34% late on Thursday. U.S. Treasuries fell on Friday after an initial rally driven by weaker-than-expected retail sales data lost momentum, while persistent Middle East tensions kept investors on edge with crude prices turning higher. In late morning trading, U.S. two-year yields, which are sensitive to the outlook for interest rate moves, rose less than a basis point (bp) to 4.148% US2YT=RR. The benchmark 10-year yield also climbed, up 3.5 bps at 4.676% US10YT=RR, while U.S. 30-year yields advanced 4.7 bps to 5.258% US30YT=RR. Rising yields mean Treasury debt prices are down. Following the retail sales data, Treasury yields, which move inversely to prices, fell across the curve, before rising again. "Looking at the 10 year, I guess it's basically done a round trip since retail sales," said Zachary Griffiths, head of macro and investment grade strategy at CreditSights. "I guess there's still a lot of uncertainty with respect to the Iran war, what that means for oil prices."

Treasuries-US bonds dip as data-driven rally fades, Iran tension lifts oil

Yield curve steepens

Hormuz Strait tensions lift oil

Retail sales weakness and rate expectations

Treasuries fall after retail sales rally fades

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