NEW YORK, June 17 (Reuters) – U.S. Treasury yields were slightly higher on Wednesday, as the May retail sales report was stronger than expected and investors looked ahead to Wednesday’s debut appearance by Federal Reserve Chair Kevin Warsh.
The 10-year Treasury yield was up 1 basis point at 4.435% and the 2-year yield, which is most sensitive to the market’s expectations for Fed rate action, was up 2 basis points to 4.06%.
Retail sales jumped 0.9% last month after a downwardly revised 0.4% gain in April, the Commerce Department’s Census Bureau said on Wednesday.
Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, rising 0.5% after a previously reported 0.5% increase in April.
Some of the rise in sales last month reflected higher gasoline prices, which lifted receipts at service stations. Gasoline prices were driven to four-year highs by disruption linked to the U.S.-Israeli war with Iran.
They have since retreated, with the national retail average slipping below $4 a gallon this week for the first time since April.
Retail sales excluding automobiles, gasoline, building materials and food services increased 0.7% in May after an unrevised 0.5% advance in April. These core retail sales correspond most closely with the consumer spending component of gross domestic product.
Much of the day’s trading focus will be on the Federal Open Market Committee statement due out at 2 p.m. after the conclusion of the first meeting chaired by Warsh, and the subsequent press conference.
With data showing strong U.S. hiring, a relatively low 4.3% unemployment rate, and inflation well above the U.S. central bank’s 2% target, many analysts anticipate the Fed will hold rates steady while removing language from its policy statement about “additional adjustments” to its benchmark interest rate. The reference has been used to indicate likely future decreases in borrowing costs.
“Attention will rest squarely on Chair Warsh’s debut press conference, and there is a high degree of uncertainty surrounding his communications given his brief media appearances thus far, the recent hawkish shift in the Committee, and his own views on reducing forward guidance,” said JPMorgan analysts Jay Barry and Jason Hunter.
“We think it is possible the Committee under Warsh trims the policy statement further, but we doubt this will be done at Warsh’s inaugural meeting.”
Investors anticipate the central bank’s policy-setting Federal Open Market Committee will deliver a quarter-percentage-point rate increase in December.
Markets will also watch for other data on Wednesday, with the Commerce Department’s Census Bureau releasing business inventories for April and the National Association of Realtors reporting pending home sales for May.
(Reporting by Lucia Mutikani, Howard Schneider, Karen Brettell; editing by Colin Barr and Barbara Lewis)
