TREASURIES-Yields fall on weak retail sales, Biden tax fears

 (Adds fresh prices, Gundlach tweet)
    By Karen Brettell and Herbert Lash
    NEW YORK, Jan 15 (Reuters) - U.S. Treasury yields fell on
Friday after retail sales data came in below economists'
expectations and following President-elect Joe Biden's proposed
$1.9 trillion stimulus program.
    Yields jumped ahead of Biden’s announcement late on Thursday
that he hopes to jump-start the weakened U.S. economy and
accelerate the distribution of vaccines to bring the coronavirus
under control with the new funds.
    But yields came back down following the announcement and
dropped further after data on Friday showed worse-than-expected
retail sales for December. Renewed measures to slow the spread
of COVID-19 undercut spending at restaurants and reduced traffic
to shopping malls, the Commerce Department said.
    Benchmark 10-year yields US10YT-RR fell to 1.094%, from
1.138% on Thursday before Biden’s announcement. They are down
from a 10-month high of 1.187% reached on Tuesday.
    Retail sales dropped 0.7% last month, while the data for
November was revised down to show sales declined 1.4% instead of
1.1% as previously reported. Economists polled by Reuters had
forecast retail sales would be unchanged in December.
    "This morning's disappointing retail sales figures
reinforced the idea that more stimulus will be needed," said Ian
Lyngen, head of U.S. rates strategy at BMO Capital Markets in
New York.
    The rate increases earlier this week likely went too far
given "we have a global pandemic, we have the Fed continuing to
buy bonds, we have weak economic data," Lyngen added.
    Bonds were also boosted by safety buying as stocks dropped
sharply, before recovering later in the day. 
    The yield curve between two-year and 10-year notes
 flattened to 95.5 basis points. The yield gap has
compressed from 103 basis points on Tuesday, which was the
widest since May 2017.
    Inflation expectations were little changed on the day with
10-year Treasury inflation-protected securities (TIPS)
 pricing in average inflation of 2.09% per year for
the next decade.
    Yields spiked earlier this week as the Treasury Department
prepared to sell new long-dated debt and on concerns that an
improving economic outlook will prompt the Fed to reduce its
record bond buying. But they have fallen since Tuesday after the
10-year and 30-year auctions saw strong investor demand and as
Fed speakers said the economy will continue to need strong
support for years.
    Jeffrey Gundlach, chief executive of investment management
firm Doubleline, said in a tweet that demand for longer-dated
debt from Asian investors seems to be rising and that yields
have peaked, at least for the short term.
    With the U.S. economy still far from its inflation and
employment goals, it is too early for the Federal Reserve to
discuss changing its monthly bond purchases, Fed Chair Jerome
Powell said Thursday.
    The Treasury will sell $24 billion in 20-year bonds on
Wednesday and $15 billion in 10-year TIPS on Thursday.
    January 15 Friday 2:25PM New York / 1925 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.08         0.0811    0.000
 Six-month bills               0.09         0.0913    0.000
 Two-year note                 99-250/256   0.137     -0.010
 Three-year note               99-192/256   0.2089    -0.015
 Five-year note                99-158/256   0.4533    -0.031
 Seven-year note               98-248/256   0.7778    -0.037
 10-year note                  97-248/256   1.0937    -0.035
 20-year bond                  95-112/256   1.6457    -0.032
 30-year bond                  94-240/256   1.8465    -0.027
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         6.75         0.25    
 U.S. 3-year dollar swap         6.00         0.25    
 U.S. 5-year dollar swap         7.25         0.25    
 U.S. 10-year dollar swap        0.25        -0.25    
 U.S. 30-year dollar swap      -25.50        -0.50    
 spread (Editing by Leslie Adler)

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