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Yields rise on retail sales, consumer confidence gains

(Updates yields) By Karen Brettell NEW YORK, Oct 16 (Reuters) – U.S. Treasury yields edged higher on Friday after data showed U.S. retail sales increased more than expected in September and consumer confidence improved in early October. Retail sales rose 1.9% last month as consumers bought motor vehicles and clothing, dined out and splashed out on hobbies, the Commerce Department said on Friday. That followed an unrevised 0.6% increase in August. Economists polled by Reuters had forecast retail sales would rise 0.7% in September. U.S. consumer sentiment also inched up to a seven-month high in early October as rising expectations for a better economy in the future outweighed a reversal in assessments of current conditions. “The economy is gradually improving, (but) the pace of that recovery has been modest and is likely to continue to be modest,” said Bill Merz, head of fixed income research at U.S. Bank Wealth Management in Minneapolis. “There are still a lot of reasons why long-end Treasury yields shouldn’t rise significantly for a sustained period in the near term.” Other data on Friday showed U.S. factory production fell unexpectedly in September, suggesting manufacturing’s recovery was slowing heading into the fourth quarter. Benchmark 10-year note yields rose to 0.744%, after moving as high as 0.757% on the retail sales data. The yields have traded in a tight range from 0.50% to 0.80% since April, with the exception of a brief spike to 0.96% in early June. Treasury yields have held near historical lows as the Federal Reserve pledges to keep interest rates zero-bound for years and continues to purchase large amounts of Treasuries and mortgage-backed debt. Inflation expectations also remain modest as the economy continues to be weighed down by the effects of COVID-19. Investors are focused on whether lawmakers are likely to pass new fiscal stimulus before the Nov. 3 presidential election. U.S. President Donald Trump on Thursday said he is willing to raise his offer of $1.8 trillion to get a deal with House of Representatives Democratic Speaker Nancy Pelosi, which is likely to raise concerns among his fellow Republicans in the Senate. Democrat challenger Joe Biden is expected to support a larger stimulus bill if he wins next month’s election. October 16 Friday 3:00PM New York / 1900 GMT Price US T BONDS DEC0 174-29/32 -0-11/32 10YR TNotes DEC0 139-16/256 -0-16/25 6 Price Current Net Yield % Change (bps) Three-month bills 0.095 0.0963 -0.008 Six-month bills 0.115 0.1167 0.000 Two-year note 99-246/256 0.1451 0.004 Three-year note 99-212/256 0.1827 0.006 Five-year note 99-170/256 0.3185 0.005 Seven-year note 98-250/256 0.5252 0.008 10-year note 98-224/256 0.744 0.010 20-year bond 97-4/256 1.2962 0.014 30-year bond 96-84/256 1.5288 0.020 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.50 -0.50 spread U.S. 3-year dollar swap 8.00 -0.50 spread U.S. 5-year dollar swap 7.50 -0.25 spread U.S. 10-year dollar swap 2.50 -0.75 spread U.S. 30-year dollar swap -35.75 -1.50 spread (Reporting by Karen Brettell, Editing by Andrea Ricci, Chris Reese and Sonya Hepinstall)

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