Treasurys mostly fall after jump in retail sales

AP News
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Posted: Dec 11, 2009 5:58 PM

Treasurys mostly fell for a third day Friday following the latest sign of economic recovery _ unexpectedly strong growth in November retail sales.

The price of the 10-year note, which is often used as a guide for interest rates on consumer loans, fell 12/32 to 98 18/32 in late trading, sending its yield up to 3.55 percent from 3.50 percent late Thursday.

The 10-year note reached its lowest price since August during Friday's trading.

The Commerce Department said retail sales jumped 1.3 percent in November, more than double what economists were expecting. It also eclipsed the 1.1 percent growth in October.

Consumer spending accounts for a large amount of U.S. economic activity, so any signs of improving sales provide hope the economy's recovery is strengthening.

A robust economy tends to weaken demand for safe-haven investments like government-backed bonds. Treasurys provide little downside risk when an economy is faltering, but also have limited potential for returns. That means that when the economy is strong, investors will opt for riskier investments like stocks because they have the potential to increase in value quickly.

The upbeat retail sales report added momentum to a sell-off in the Treasury market that began Wednesday. Treasurys dropped sharply after disappointing demand and prices at auctions for $21 billion in 10-year notes and $13 billion in 30-year bonds.

In other trading, the price of the two-year note fell 2/32 to 99 28/32, while its yield rose to 0.81 percent from 0.78 percent.

The price of the 30-year bond rose 1/32 to 97 26/32. Its yield was unchanged at 4.51 percent.

The yield on the three-month T-bill was flat at 0.01 percent, while its discount rate was 0.03 percent.

The cost of borrowing between banks fell. The British Bankers' Association said the rate on three-month loans in dollars _ the London Interbank Offered Rate, or Libor _ fell to 0.2536 percent from 0.2543 percent.