Rates Rise on Strong Retail Sales

The 10-year U.S. Treasury yield increased 4 bps on the day to close at 1.34%. Swap rates and yields sold-off across the curve after unexpectedly strong August U.S. retail sales data helped temper fears that the COVID delta variant may derail the global economic recovery. U.S. initial jobless claims rose slightly for the week of 9/11 to 332,000, but still remain near pandemic lows.

U.S. retail sales beat analysts’ estimates, with headline sales increasing 0.7% month-over-month in August (vs. expectations of -0.7%). Core retail sales, a primary consumer spending component of GDP and excludes auto and gas, increased 2.0% month-over-month after contracting 0.7% in July. Back-to-school shopping and child-tax credits hitting American’s bank accounts helped August retail sales rebound after contracting in July, with online sales leading the push.

Philly Fed business activity index increased in September after four months of contraction. On the back of a stronger than expected New York Fed manufacturing data yesterday, the Philadelphia Fed’s business index unexpectedly rose to 30.7 (a positive reading indicates growth). The increase was primarily attributed to a rebound in shipments and inventories. Prices paid are still elevated but did fall from the previous month to 67.3, down from 71.2. Solid domestic and foreign demand helped buoy the index, but the six-month outlook did drop to 20.0 from 33.7 as supply-side disruptions continue to be an issue.