By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices extended gains slightly on Wednesday, pushing yields lower, after a report showed U.S. retail sales fell more than some economists expected, adding to concerns about the ability of the economy to recover.
Also supporting bonds are expectations that minutes from the Federal Reserve's June policy meeting, due for release later in the session, will focus on a slowdown in growth and the possible need for more accommodative policy measures.
Yields on 10-year notes (UST10Y 3.09, -0.03, -0.93%) , which move inversely to prices, fell 4 basis points to 3.09%. A basis point is 0.01%.
Yields have increased in four of the last five sessions. On July 1, 10-year yields closed at 2.93%, the lowest since April 2009.
Yields on 2-year notes (UST2YR 0.64, -0.03, -4.19%) fell 4 basis points to 0.64%.
Two-year yields touched a new record low about two weeks ago.
That's left bonds will little room to move amid weak data, which supports demand for the relative safety of fixed income, and the big rally in stocks on positive earnings expectations, analysts said.
"Given how strong equities have been lately, one would have expected bond yields to be rising at a much faster pace," said George Goncalves, bond strategist at Nomura Securities.
The more orderly response from the bond market suggests to him that investors are not reallocating assets into stocks and away from bonds, but simply putting cash that's been sitting on the sidelines into equities.
"The key to watch is if this shift from short-covering to an earnings-related melt-up gets traction even while leading economic indicators continue to come in weak," he said. "The melt-up with no follow-through on the economic side could be another head-fake, which may be one of the reasons why the bond market is not gapping higher in yields as well."
The S&P 500 Index (SPX 1,095, +16.59, +1.54%) has gained about 6.3% this month.
The Commerce Department said retail sales fell 0.5% in June. Excluding autos, sales slipped 0.1%. Read about retail sales.
A separate report said import prices fell 1.3% last month.
The lack of reaction after the data is "perhaps consistent with the theme of weak data surprises now the norm and so losing the impact,' said strategists at CRT Capital Group.
Still, gains may be limited before the Treasury Department's sale of 30-year bonds (UST30Y 4.09, -0.02, -0.46%) , the last of three big bond sales this week.
The sale is a reopening, meaning the securities being sold will mature on the same date and carry the same coupon as quarterly-issued securities, in this case, debt sold in May. The amount was the same as at the previous reopening last month.
Auctions of 3-year (UST3YR 1.07, -0.03, -2.91%) and 10-year notes this week received tepid demand from investors, after coming at very low yields. Read about 10-year bond auction results.
The government will sell $21 billion in 30-year bonds, with bids due by 1 p.m. Eastern time.
Minutes from the Fed's meeting are due at 2 p.m. Eastern.
The minutes will provide a unique insight into any discussions that may have occurred related to, for instance, the purchase of additional assets by the Fed or additional easing policies the Fed may implement," Dan Greenhaus, chief economic strategist at Miller Tabak, wrote in emailed comments. "Along with any adjustments to the growth outlook and concerns related to the European situation, this area will be incredibly important for the markets."
