Treasury 5-year yield at record low after retail sales fall

July 16 (Bloomberg) -- Treasury five-year note yields fell to record lows as an unexpected decline in retail sales for a third straight month raised concern the economic recovery is stalling and drove investors to the refuge of government debt.

Investors seeking the safest assets amid concern global growth is faltering and Europe’s sovereign-debt crisis also drove yields to all-time lows in the U.K., Canada, France, Germany and the Netherlands. Treasuries gained earlier after Germany’s top court said it will take more than eight weeks to rule on the euro-area’s bailout fund, holding up crisis- resolution efforts.

“It was a pretty horrific number,” said Brian Edmonds, head of interest rates in New York at Cantor Fitzgerald LP, one of 21 primary dealers that trade with the Federal Reserve. “There’s continued weakness in the economy, they’ve been open to more stimulus. People still need to buy Treasuries -- there’s still demand there.”

The five-year note yield fell four basis points, or 0.04 percentage point, to 0.58 percent at 9:26 a.m. in New York, according to Bloomberg Bond Trader prices. It touched 0.5849 percent, lower than the previous record of 0.5884 percent on June 1. The benchmark U.S. 10-year yield fell four basis points to 1.45 percent, touching 1.4470 percent. It set a record low of 1.4387 percent also on June 1.

The drop in retail sales followed a 0.2 percent decrease in May, Commerce Department figures showed today in Washington. The decline was worse than the most-pessimistic forecast in a Bloomberg News survey in which the median projection called for a 0.2 percent rise. The June decrease was broad-based, including car dealers, department stores and gasoline stations.

‘Continued Weakness’

The Federal Reserve Bank of New York’s general economic index rose to 7.4 from 2.3 in June, another report showed, with the median forecast of 51 economists surveyed by Bloomberg News calling for an increase to 4.0. Readings greater than zero signal expansion in the so-called Empire State Index that covers New York, northern New Jersey and southern Connecticut. The last negative reading was in October.

“Everything is going to hit a record, except for the two- year note,” said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, a primary dealer. “If you don’t have the consumer continuing to spend, the likelihood of continued weakness in the economy goes up. It’s not a surprise we’re rallying.”

The 10-year note will drop to 1.25 percent and the 30-year bond will drop to 2.25 percent over the next two months, Jersey forecasted.

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