Following Monday's pullback, the treasury market saw a significant rebound on Tuesday. Although treasuries initially retraced some gains early in the session, they managed to regain positive ground as the day progressed. By the close, the yield on the benchmark ten-year note, which inversely correlates with its price, decreased by 6.2 basis points to 4.167 percent.
This recovery in the treasury market was driven by trader optimism regarding future interest rates, spurred by comments from Federal Reserve Chair Jerome Powell. Powell indicated that the inflation data from the second quarter has bolstered confidence among policymakers that inflation is returning to the central bank's target of 2 percent. He emphasized, "If you wait until inflation gets all the way down to 2 percent, you've probably waited too long."
In economic news, the Commerce Department reported that retail sales remained flat in June, following a revised 0.3 percent increase in May. This performance aligned with economists' expectations, who had anticipated no change compared to the previously reported 0.1 percent uptick for May. When excluding the volatile auto sector, retail sales increased by 0.4 percent in June, following a modest 0.1 percent rise in May, and surpassing expectations of a 0.1 percent increase.
Additionally, the Labor Department released data showing that import prices in the U.S. were unexpectedly flat in June after a revised 0.2 percent decline in May. Economists had forecasted a 0.2 percent increase compared to the originally reported 0.4 percent decrease for the previous month. Moreover, export prices decreased by 0.5 percent in June after a revised 0.7 percent drop in May, with economists predicting a smaller 0.1 percent decline compared to the previously reported 0.6 percent decrease.
Looking ahead, Wednesday's trading may be influenced by reactions to new reports on industrial production, housing starts, and the Federal Reserve's Beige Book.
