Bonds fall as retail sales stronger than expected

The Commerce Department reported that retail sales fell in April, but the 0.2 percent dip was in line with analysts' forecasts. Furthermore, the report revealed higher-than-expected sales excluding automobiles, and revised its reading on March sales excluding autos up to 0.4 percent from 0.1 percent.

Though the data bolstered the notion that the average U.S. consumer is still struggling with rising costs, many bond investors regarded the reading as indicative of a weak but resilient economy.

"It takes the Fed, no question, out of the picture," said John Spinello, bond strategist at Jefferies & Co., referring to the belief in the market that the Federal Reserve's rate-cutting campaign is complete. "And there continues to be concerns about inflation."

Keeping those inflation worries alive Tuesday was a government report on U.S. import prices. The Labor Department said import prices jumped in April for the second consecutive month by 1.8 percent -and even after stripping out fuel price gains, import prices rose. The data suggested that the weakened dollar is continuing to send the price of imported goods higher.

The benchmark 10-year Treasury note fell 24/32 to 99 28/32 and its yield rose to 3.89 percent from 3.80 percent late Monday, according to BGCantor Market Data. Bond prices move in the opposite direction of yields.

The 30-year long bond fell 1 6/32 to 96 4/32 and yielded 4.61 percent, up from 4.54 percent late Monday. The prospect of high inflation particularly dampens the value of long-term bonds.

The 2-year note fell 7/32 to 99 13/32 and its yield rose to 2.43 percent from 2.32 percent.

On Monday, Treasurys slid modestly as stocks rallied, buoyed by a pullback in oil prices and signals that the credit markets are recovering.