Treasury yields end at one-week lows after surprisingly steep drop in retail sales

U.S. government debt rallied for a second day on Friday, sending yields to one-week lows, after January retail-sales data came in sharply lower than expected and raised questions about the strength of the economy.

What happened

• The yield on the 2-year Treasury BX:TMUBMUSD02Y slipped 5.1 basis points to 4.258% from 4.309% on Thursday. For the week, it fell 1.9 basis points, according to Dow Jones Market Data. Yields move in the opposite direction to prices.
• The yield on the 10-year Treasury BX:TMUBMUSD10Y fell 4.9 basis points to 4.475% from 4.524% on Thursday. For the week, it fell less than 1 basis point.
• The yield on the 30-year Treasury BX:TMUBMUSD30Y dropped 2.9 basis points to 4.696% after factoring in new-issue levels. For the week, it rose less than 1 basis points.
• Friday’s closing levels for 2- and 10-year yields were the lowest since Feb. 6. The 30-year rate finished Friday’s session at its lowest level since Feb. 7.

What drove markets

Data released on Friday revealed that retail sales for January fell by the most in almost two years as consumers took a break from the holiday-shopping season and cold weather in the U.S. kept many people indoors. Sales sank 0.9%, compared with the 0.2% decline expected by economists polled by the Wall Street Journal.

“This is a very disappointing report,” said Carl Weinberg, chief economist, and Mary Chen, research assistant, at High Frequency Economics. “Today’s report will cause all economic forecasters, including us, to mark down estimates of GDP growth.”

In addition, “Fed rate-cut expectations will be fueled by this report,” they wrote in an email. “Any sign of consumer weakness is not good news for markets, even though expectations of lower interest rates and inflation may help stocks.”

In other data on Friday, import prices rose 0.3% in January, marking the biggest increase in months. Meanwhile, industrial production rose 0.5% last month versus economists’ median estimate for a 0.3% advance.