(Bloomberg) -- Most US Treasury yields climbed to new year-to-date highs, with the 2-year note's approaching 5%, after hot retail sales data further eroded investor confidence that the Federal Reserve will start cutting interest rate cuts this year.
The benchmark 10-year note's yield rose as much as 11 basis points to 4.63%, the highest level since mid-November, after March retail sales rose more than economists estimated and February's increases were revised higher.
Expectations for monetary policy have been shifting toward a later start to Fed rate cuts, which officials have said requires a higher degree of confidence that inflation is on a sustainable path back toward their 2% target. Traders are no longer fully pricing in a rate cut before November, while at the start of the year, cuts beginning in March were fully priced in.
"If we keep getting numbers like today's retail sales, the Fed may not be in a position to cut rates," said Tracy Chen, a portfolio manager at Brandywine Global Investment Management.
The March retail sales data was the latest in a spate of indicators that show resilience in the US economy and sticky inflation. It leaves bond traders hungry for clear and conclusive proof that Fed interest-rate cuts are imminent before making any more big bullish wagers.
Treasury options flow in the aftermath of the retail sales data included bearish protection targeting higher yields, with one anticipating a 4.65% 10-year yield for a premium of over $4 million.
New York Fed President John Williams said on Monday the central bank will likely start lowering interest rates this year if inflation continues to gradually come down. He also said, though, that monetary policy is in a good place, and pointed to the enduring strength of consumers and the broader economy.
With US elections looming later this year, the Fed has the "calendar is working against them," Tom Porcelli, chief US economist at PGIM Fixed Income, said on Bloomberg Television.
"If they don't go in September or November, if they don't go in July — that leads all the way to December," he said. "At best, the Fed gets one in this year, maybe two."
--With assistance from Alexandra Harris and Edward Bolingbroke.
(Updates prices; adds comments and detail from fourth paragraph.)
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