MW: Treasurys key on weak U.S. retail sales, euro-zone recession
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices remained higher Friday, gaining after a government report indicated that U.S. retail sales fell a steeper-than-expected rate in October.
Yields on 10-year notes fell 12 basis points, or 0.12%, to 3.74%. Bond prices move inversely to their yields.
Retail sales fell a record 2.8% last month, the Commerce Department said.
Excluding automobiles, sales fell 2.2%. Economists surveyed by MarketWatch expected total sales to decline 2.3% and sales excluding autos to fall 1.7%. See Economic Report.
Separately, the Labor Department said prices of imported goods fell the most in two decades, plunging by 4.7% last month -- potential evidence that deflation's on its way, said strategists at RBS Greenwich Capital.
"Longer end apparently likes both the data and tepid weakness in stocks," RBS said in a note.
The Reuters/University of Michigan Surveys of Consumers results for early November will follow the retail report and are expected to show another drop in sentiment.
Two-year note yields also lost ground, down three basis points to 1.21% to remain near lows not seen in five years.
Federal Reserve chief Ben Bernanke said in a speech in Frankfurt that challenges remain for the global economy and that policy makers stand ready to take additional action should conditions warrant. See The Fed.
Barclays Capital expects the central bank to again lower its target lending rate for banks next month, this time to 0.75%. This would be the lowest rate since the Fed started announcing a target.
Michael Pond, Treasury strategist at Barclays, pointed to the expectations for further monetary easing as well as a continued flight-to-liquidity bid into the front end of the Treasury yield curve.
These are coinciding "as risk taking dries up into the end of 2008," he said. Barclays is one of the 17 primary security dealers that traders with the Fed.
Such a trading backdrop for Treasurys should extend the recent rally in two-year notes, taking yields below 0.90% by the end of the year, he said.
Treasurys were up earlier as European economic data showed that the 15-nation euro zone fell into a recession.
