March 5, 2019 / 3:57 PM / 13 days ago

TREASURIES-Yields up on strong economic data and retail earnings

NEW YORK, March 5 (Reuters) - U.S. Treasury bond yields were higher on Tuesday following a report showing business activity and spending jumped in non-manufacturing sectors in February, and after strong earnings from Target Corp encouraged investors to discount earlier reports of slowing U.S. retail sales.

The Institute for Supply Management report on the U.S. non-manufacturing sector showed companies in February placed the most new orders since August 2005, an indicator of robust health. Its measure of business activity also jumped, to 64.7 last month, versus 59.7 in January. Yields jumped as the strong data added to the chances of an interest rate hike in 2019.

The ISM report is significant “because it is a February number. So much of the data we’re getting is really old stuff,” said Mary Ann Hurley, vice president, fixed income trading at D.A. Davidson, citing the U.S. government shutdown. A new home sales report also released on Tuesday reflected data for December.

For that reason, “the ISM non-manufacturing is the most important announcement” of the day, said Hurley.

Yields were also higher after U.S. retailer Target forecast 2019 profit above Wall Street estimates as strong online sales and higher customer traffic at stores drove better-than-expected holiday sales, sending its shares higher, last up 4.3 percent.

Target’s earnings beat helped reverse some of the pall cast over the American economy by the Commerce Department’s report that December’s retail sales were the weakest since 2009. The retail sales number had also been delayed by the government shutdown and was released in mid-February.

“There’s some skepticism that the retail sales report that we saw for December really was as weak as it appeared because we’ve seen such good earnings out of Target,” said Hurley.

Analysts also mentioned that they were looking at comments from Fed members Eric Rosengren and Robert Kaplan.

Rosengren, president of the Federal Reserve Bank of Boston, said earlier concerns that the economy might overheat without higher interest rates now seem “less pressing,” with little inflation pressure and sharp market swings at the end of 2018 making investors less ebullient.

A $5.7 trillion borrowing binge by U.S. companies could make a slowdown in the world’s biggest economy even more painful and is one more reason the Federal Reserve was wise to put interest rate hikes on hold, said Kaplan, president of the Dallas Fed.

The benchmark 10-year yield was last up 1.3 basis points to 2.735 percent. At both ends of the yield curve, the 30-year yield was last at 3.094 percent, up 0.3 basis point, and the two-year yield, which reflects investor expectations of future rate hikes, was up 1.4 basis points to 2.559 percent. (Reporting by Kate Duguid; Editing by Dan Grebler)

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