US Treasuries complex slump on firm economic data

The US Treasuries complex saw selling across the curve on Friday after reading firmer consumer price and retail sales. Also, stronger-than-expected producer prices data for June, coupled with maintained improvement in jobless claims discouraged investors from safe-haven buying.

The yield on the benchmark 10-year Treasury note rose 4 basis points to 1.570 percent and the yield on short-term 2-year note climbed 2-1/2 basis points to 0.702 percent by 12:50 GMT.

The consumer price index rose 0.2 percent m/m in June, below expectations for a +0.3 percent m/m result, as compared to the unrevised +0.2 percent m/m in May. On an annual basis, it increased 1 percent y/y, marginally lower than the 1.1 percent y/y consensus, versus the unrevised +1.0 percent y/y result that occurred in May.

Despite the overall dampness seen in recent months, we expect a gradual pick-up in inflation readings will be seen in the months ahead. However, we are unlikely to see a substantial move towards the Fed's 2 percent objective until we see greater traction from wage pressures.

Moreover, the retail sales jumped 0.6 percent m/m in June, above market expectations for a +0.1 percent m/m reading, as compared to the revised +0.2 percent m/m reading that occurred in May (previous was +0.5 percent). We continue to anticipate broader improvement in consumer activity in the coming months, which is likely to come hand-in-hand with improvement in employment conditions.

On Thursday, the June Labour Department producer prices index (PPI) report revealed an overall increase of +0.5 percent m/m result, comes in above market expectations for a +0.3 percent m/m reading, as compared to the +0.4 percent m/m increase that occurred in May.

Similarly, the US Initial jobless claims for the week ending 9 July held unchanged at 254k, well below expectations for a 265k result, from the unrevised 254k reading seen in the week prior.

Markets now look ahead to Empire manufacturing, industrial production/capacity utilization, business inventories and Michigan consumer sentiment releases to finish off the week on Friday.

Meanwhile, the S&P 500 Futures rose 3.25 points to 2,160.5 by 12:50 GMT.