Treasuries Close Sharply Lower Amid Interest Rate Worries

(RTTNews) - After ending the previous session nearly flat, treasuries moved sharply lower over the course of the trading day on Friday.

Bond prices came under pressure in early trading and remained firmly in negative territory throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.3 basis points to 2.614 percent.

With the substantial increase on the day, the ten-year yield extended its recent upward trend, reaching its highest closing level in two months.

Concerns about the outlook for interest rate contributed to the weakness among treasuries following the release of upbeat U.S. retail sales data.

The Commerce Department released a report showing that retail sales rose by 0.6 percent in the month of August, in line with economist estimates.

The report also showed a notable upward revision to the data for July, with sales rising by 0.3 percent after originally being reported as virtually unchanged.

Paul Dales, Senior U.S. Economist at Capital Economics, said the August sales growth combined with the upwardly revised July data suggests that annualized real consumption growth in the third quarter will come in between 1.5 and 2.0 percent, a bit stronger than previously expected.

Thomson Reuters and the University of Michigan also released a report showing a much bigger than expected improvement in consumer sentiment in the month of September.

The data added to speculation that the Federal Reserve may begin raising rates sooner than anticipated, with traders looking ahead to next week's monetary policy meeting.

The Fed is expected to announce a further reduction in the pace of its asset purchases, although traders are likely to pay closer attention to any clues about the outlook for rates.

Earlier this week, analysts repeatedly pointed to a report from the San Francisco Fed that said the public seems to expect more accommodative monetary policy than the central bank's projections suggest.

The public also appears to be less uncertain about the future course of monetary policy than FOMC participants, the San Francisco Fed said.

While the Fed's monetary policy announcement is likely to take center stage next week, traders are also likely to keep an eye on reports on industrial production, housing starts, and wholesale and consumer price inflation.