FX.co ★ Treasury Yields Fall After Soft Retail Sales

The yield on the US 10-year Treasury fell nearly 5 bps to 4.16% on Tuesday, its lowest level since mid-January, after weaker-than-expected retail sales data signaled a sharp slowdown in consumer spending. The figures reinforced expectations that the Federal Reserve will cut interest rates later this year. Retail sales were flat in December, defying forecasts for a 0.4% increase, while the core control group that feeds into GDP calculations slipped 0.1%. Money markets are now pricing in roughly a 25% chance that the Fed will implement three quarter-point rate cuts in 2026, up from expectations of just two cuts a week earlier. Looking ahead, investors will turn their attention to the benchmark employment report due tomorrow and the CPI release on Friday for further clues on the trajectory of the US economy. At the same time, markets are watching developments in China following reports that authorities have urged banks to reduce their exposure to US Treasuries amid concerns over concentration risk and increased volatility.