Treasuries Close Modestly Lower Following Early Volatility

Treasuries showed a lack of direction in morning trading on Friday but saw modest weakness throughout the afternoon.

Bond prices lingered below the unchanged line going into the close of trading. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.3 basis points to 0.744 percent.

The modestly lower close by treasuries came following the release of a report from the Commerce Department showing much stronger than expected U.S. retail sales growth in the month of September.

A report from the Commerce Department said retail sales spiked by 1.9 percent in September after rising by 0.6 percent in August. Economists had expected retail sales to climb by 0.7 percent.

Excluding a jump in sales by motor vehicles and parts dealers, retail sales still surged up by 1.5 percent in September after climbing by a downwardly revised 0.5 percent in August.

Ex-auto sales were expected to rise by 0.5 percent compared to the 0.7 percent increase originally reported for the previous month.

Closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, jumped by 1.4 percent in September after dipping by 0.3 percent in August.

Michael Pearce, Senior U.S. Economist at Capital Economics, said the strong retail sales growth “suggests the economy was carrying more momentum into the fourth quarter than anticipated, defying fears that the expiry of enhanced unemployment benefits in the summer would harm the economy.”

Further reducing the appeal of safe havens like bonds, the University of Michigan released a report showing a bigger than expected improvement in consumer sentiment in the month of October.

The preliminary report said the consumer sentiment index rose to 81.2 in October from the final September reading of 80.4. Economists had expected the index to inch up to 80.5.

However, a report from the Federal Reserve showing an unexpected decrease in industrial production in the month of September helped limit the downside for treasuries.

The Fed said industrial production fell by 0.6 percent in September after rising by 0.4 percent in August. The drop surprised economists, who had expected production to increase by 0.5 percent.

Looking ahead to next week, traders are likely to keep an eye on the latest developments in Washington as well as reports on homebuilder confidence, housing starts, and existing home sales.

The material has been provided by InstaForex Company – www.instaforex.com

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