U.S Retail Sales Data Hold Treasury Yields Steady

The morning of Tuesday brought about a mixture of movements in U.S. yields, as traders engaged in the evaluation of July's retail sales report and its potential implications for the economic landscape.

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Here are the current yield levels:

• The yield on the 2-year Treasury (BX:TMUBMUSD02Y) declined by 3.2 basis points to 4.931%, down from 4.963% on Monday.
• The yield on the 10-year Treasury (BX:TMUBMUSD10Y) remained relatively stable at 4.188%, compared to 4.181% on Monday afternoon.
• The yield on the 30-year Treasury (BX:TMUBMUSD30Y) saw an increase of 1.5 basis points to 4.295%, up from 4.28% late Monday.Notably, Monday's levels represented the highest points for the 10- and 30-year yields since August 3, based on 3 p.m. data sourced from Dow Jones Market Data.

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Market dynamics are being influenced by the release of U.S. data on Tuesday, revealing a 0.7% rise in retail sales for July, surpassing economists' predictions. This growth was driven by robust Internet purchases made during Amazon Prime Day.

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Investor attention is directed towards the retail sales figures as they seek insights into how consumers are navigating the Federal Reserve's campaign to elevate borrowing costs. The benchmark 10-year yield briefly exceeded 4.2% on Tuesday.

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Current market estimations show an 86.5% likelihood that the Federal Reserve will maintain interest rates within the range of 5.25% to 5.50% during the September 20 meeting, according to the CME FedWatch Tool. The likelihood of a 25-basis-point rate hike to a range of 5.5% to 5.75% during the subsequent November meeting stands at 34.7%, marking an increase from 28% recorded a week earlier.

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The New York Fed's Empire State business conditions index, serving as an indicator of manufacturing activity within the state, experienced a decline of 20.1 points in August, reaching a negative value of 19. This reading marks the first instance of negativity since May.

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Andrew Hunter, Deputy Chief U.S. Economist for Capital Economics, commented on the situation: "The 0.7% month-on-month surge in retail sales for July implies that the impact of tighter monetary policy on actual economic activity remains notably limited. Yet, this might not necessarily concern the Fed, given that ongoing evidence continues to suggest a rapid dissipation of inflationary pressures." Hunter went on to state that, while the full effects of the Fed's tightening measures are still materializing and employment growth is slowing considerably, the probability of a renewed downturn in GDP growth during the latter half of the year outweighs the likelihood of acceleration. Regardless, the Fed's propensity to conduct further rate hikes won't be prompted solely by resilient growth, as long as core inflation maintains a swift decline.

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