TREASURIES-US yields skid to multi-month lows on dovish Fed shift
* U.S. retail sales rise 0.3%, jobless claims fall * U.S. 10-year yields fall to lowest since July * U.S. two-year yields drop to weakest level since May * U.S. rate futures price in 80% chance of March 2024 cut (Recasts, adds analyst comment, details on U.S. data, byline, U.S. rates table, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Dec 14 (Reuters) - U.S. Treasury yields dropped to multi-month lows on Thursday as bond investors braced for looming rate cuts after the Federal Reserve shifted to a dovish stance amid central bank projections that saw lower interest rates next year. In a press briefing on Wednesday after the Fed held interest rates as expected, Chair Jerome Powell confirmed that the question of when rate cuts would be appropriate has come into view. He also took note of the risk of easing too late. U.S. benchmark 10-year yields on Thursday sank to their lowest since July at 3.932%. Two-year yields fell to their lowest since May at 4.28%. However, yields, which move inversely to prices, came off their lows after stronger-than-expected retail sales and initial jobless claims data, suggesting that the Fed may hold interest rates steady for a little longer before shifting to an easing stance. "Treasuries came into the event strong with 10-year yields comfortably below 4.0% and while the rally has eased in the wake of the data, yields remain below Wednesday's close," wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, after the U.S. reports. "We're unwilling to fade the strength based on the fact the tone shift was driven by a refreshed understanding of the Fed's reaction function to the evolution of the inflation data as opposed to a shift in the data itself. Lower rates and a less inverted curve into the weekend will emerge as the path of least resistance." U.S. retail sales rebounded 0.3% last month. Data for October was revised lower to show sales falling 0.2% instead of the 0.1% previously reported. Economists polled by Reuters had forecast retail sales edging down 0.1%. A separate report showed initial claims for state unemployment benefits dropped 19,000 to a seasonally-adjusted 202,000 for the week ended Dec. 9. Economists had forecast 220,000 claims for the latest week. U.S. 10-year yields were last down 7.9 basis points (bps) at 3.954%. Two-year yields, which reflect interest rate expectations, were down 10.7 bps at 4.373%. The yield was at 4.33% before the data. The rate futures market is pricing an 81% chance of a Fed cut in March, according to LSEG's FedWatch, up from about 76% late on Wednesday. The market has also factored in about 140 bps of easing by the end of next year. December 14 Thursday 9:28AM New York / 1428 GMT Price Current Net Yield % Change (bps) Three-month bills 5.2225 5.3798 -0.011 Six-month bills 5.0875 5.3081 -0.022 Two-year note 100-229/256 4.3924 -0.089 Three-year note 100-192/256 4.1067 -0.081 Five-year note 102-2/256 3.9251 -0.078 Seven-year note 102-120/256 3.9653 -0.075 10-year note 104-88/256 3.9656 -0.067 20-year bond 106-112/256 4.2667 -0.073 30-year bond 110-224/256 4.1145 -0.069 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama, Kirsten Donovan)
