Retail Sales Boosts 10-Year Yield to 16-Year High

10-Year Treasury Yield crests 4.26%. Hot retail sales data pushed rates significantly higher in the morning, momentarily forcing the 2-year yield to over 5% and the 10-year to 4.26%, a high since 2007. However, rates dropped from their highs as markets continued to digest China’s surprising rate cut, which sent China’s 10-year yield to 2.56%, the lowest since 2020. The 2-year and 10-year UST yields closed at 4.95% and 4.21% following the afternoon’s rally, respectively.

Consumer spending is strong despite restrictive policy. July retail sales exceeded expectations across the board. MoM, headline retail sales increased vs. June (0.7% vs. 0.2%), and both core measurements soared past last month’s results (1.0% vs. 0.2% and 0.3%, respectively). Consumers remain a buttress against a recession, but near-term headwinds such as lower pandemic-era savings, higher debt costs, and a resumption of student-loan payments could test their resilience, even though wage hikes have recently outpaced inflation. Looking ahead to September’s FOMC meeting, there’s still more data to digest (spotlight on PCE). Parts of last week’s strong PPI and today’s data feed directly into PCE, suggesting it could be elevated, fueling the “higher-for-longer” narrative.

Fed President Kashkari notes progress, but inflation is “still too high.” Fed voter Neel Kashkari made hawkish comments today, stating that he wants “…to see convincing evidence that inflation is well on its way back down to 2%, and then we can allow it some time to run.” However, he noted that the Fed has “made some good progress”, adding that “we don’t need to get there tomorrow, we can allow it to gradually get there over time.”