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Treasuries Give Back Ground On Stronger Than Retail Sales Growth

After moving modestly higher over the course of the two previous sessions, treasuries gave back some ground during trading on Tuesday.

Bond prices climbed off their worst levels in afternoon trading but remained in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3 basis points to 2.122 percent.

The pullback by treasuries came following the release of a report from the Commerce Department showing much stronger than expected U.S. retail sales growth in the month of June.

The Commerce Department said retail sales rose by 0.4 percent in June, matching the downwardly revised increase in May. Economists had expected retail sales to inch up by 0.1 percent.

Closely watched core retail sales, which exclude autos, gasoline, building materials and food services, jumped by 0.7 percent in June after climbing by an upwardly revised 0.6 percent in May.

ING Chief International Economist James Knightley said the report suggests consumer spending rose robustly in the second quarter, which he expects to help keep GDP growth above 2 percent.

"Despite this, financial markets continue to price in four 25 basis point interest rate cuts from the Federal Reserve over the next 18 months," Knightley said.

He added, "Yet, in an environment where growth is solid, core inflation is close to target, unemployment is near 50-year lows and stock markets are at all-time highs, there seems little justification for anything more than precautionary rate cuts."

Meanwhile, a separate report from the Fed showed U.S. industrial production was unexpectedly flat June, as a steep drop in utilities output offset increases in manufacturing and mining output.

The Fed said industrial production was unchanged in June after climbing by 0.4 percent in May. Economists had expected production to edge up by 0.2 percent.

Treasuries climbed off their worst levels in afternoon trading after President Donald Trump told reporters U.S.-China trade talks still have a "long way to go" and once again threatened to impose tariffs on another $325 billion worth of Chinese goods.

A report on housing starts may attract some attention on Wednesday along with the Federal Reserve's Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts.

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