MarketWatch reports that the US bond market was recalibrated on Tuesday due to flatter retail sales in December. The stalling growth in retail sales falsified the fear that the US economy that it is overheating, according to the statement from one of the chief executives.
The December retail sales data damaged the expectations for economic growth and contributed to an extended increase in US government debt.
The flat retail sales indicated that American consumer spending vanished at the end of last year, and the US growth is not as strong as it was assumed. Resultantly, it may lead to a lower path for both inflation and interest rates this year. Since the US usually leads the remaining world, traders in Europe may start analysing the outcome of this weakness for the global economy.
Jay Hatfield, CEO of Infrastructure Capital Advisors, has said that the concern that the economy may be overheating is false.
The only time concerns about an overheating economy existed was in January, when the quarterly gross domestic product of the United States was revised to 4.4 percent from 4.3 percent in the third quarter.
At that, it was assumed that the stronger growth would lead to increasing inflationary pressures and decreasing rate cuts by the Fed, which would lead to higher bond yields.
The increase in the bond price on Tuesday pushed the benchmark 10-year yield back to the levels observed before the January growth concerns, dropping 4.3 base points to 4.14%, the lowest yield since the previous four weeks after reaching around 4.3% previous month.
The 30-year yield also decreased by 6.6. base points to 4.78%, the lowest since January. The bond yields have an inverse relationship with the prices, which means interest rates fall when bond prices increase.
Fed-funds futures traders expected a 21.7% chance of receiving a 0.25% cut in rates in the next month, as opposed to a 17.2% chance a day ago, according to the CME FedWatch Tool, which is more than the indications given by the Fed’s officials.
Read: Gold and Silver Increase as US Yields Fall on Softer Retail Sales
Gregory Daco, Chief Economist at EY Parthenon, informed Market Watch that the retail sales report for December was against the expected gains of 0.4%, following a 0.6% increase in November. He stated that, though some affluent households continued spending more cautiously and relied heavily on credit or savings to preserve their normal spending.
The bond markets in the UK, Germany, and France also extended increases after the release of the US December retail sales data. According to Hatfield, some of the increase in the European bond market is related to the US data release, as the US usually drives the world. Currently, the slow economic growth suggests that rates will be decreased.
He further added that it is expected that inflation is likely to drop sharply in the first quarter of 2026, which could push the 10-year bond yield below 4%. The Weak December retail sales might also cause the Fed’s growth forecast to be revised downward to 4% from 4.2%
