Treasuries Show Notable Move Back To The Downside

After moving higher for three straight days, treasuries showed a notable pullback during the trading session on Friday.

Bond prices initially showed a lack of direction but slid firmly into negative territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 6.1 basis points to 1.772 percent.

The ten-year yield largely offset the recent drop but ended the session just shy of the nearly two-year closing high set on Monday.

The pullback by treasuries came as traders focused on recent comments from Federal Reserve officials indicating interest rate hikes are coming as soon as March.

A slew U.S. economic reports were released on the day, including a Commerce Department report unexpectedly showing a steep drop in retail sales, although the data is not expected to dissuade the Fed from raising rates.

The Commerce Department said retail sales tumbled by 1.9 percent in December after edging up by a revised 0.2 percent in November.

The sharp pullback surprised economists, who had expected retail sales to come in unchanged compared to the 0.3 percent growth originally reported for the previous month.

Michael Pearce, Senior U.S. Economist at Capital Economics, said the unexpected slump in retail sales appears to mainly reflect the ongoing impact of higher prices and supply shortages.

Inflation concerns have also contributed to a bigger than expected drop in U.S. consumer sentiment in the month of January, according to preliminary data released by the University of Michigan on Friday.

The report showed the consumer sentiment index fell to 68.8 in January from 70.6 in December. Economist had expected the index to edge down to 70.0.

The Federal Reserve also released a report unexpectedly showing a modest decrease in U.S. industrial production in the month of December.

The Fed said industrial production edged down by 0.1 percent in December after climbing by an upwardly revised 0.7 percent in November.

Economists had expected industrial production to rise by 0.4 percent compared to the 0.5 percent increase originally reported for the previous month.

Following the long holiday weekend, next week's trading may be impacted by reaction to reports on housing starts, existing home sales and regional manufacturing activity.

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