Government bond prices rose on Wednesday on shortcovering, reversing brief losses tied to surprisingly strong data that fanned worries the Federal Reserve may raise interest rates to curb inflation.
Short-sellers, who bet on falling prices, booked profits after latest reports on consumer spending and import prices initially spurred selling that sent benchmark yields back near their five-year highs, analysts said.
At this point, it's just shortcovering and position squaring, said Carley Garner, analyst at Alaron Trading in Chicago. I don't think anyone wants to step in front of a moving train.
The U.S. government reported that overall retail sales in May grew at their strongest pace since early 2006, much faster than analysts had expected.
Also, government data showed import prices rose 0.9 percent last month, three times the consensus increase forecast by economists polled by Reuters.
This is just another brick in the wall as far as data that shows the global economy is surging. It is hard to find a weak data point in the reports, said T.J. Marta, fixed income strategist at RBC Capital Markets in New York.
Ten-year Treasury notes were up 14/32 in price for a yield of 5.23 percent, down 6 basis point from late Tuesday. In earlier European trade, 10-year yields strayed as high as 5.33 percent, their highest in five years.
U.S. rate futures suggested that traders are pricing in the chance that the Fed may raise rates by the end of the year. Just a month ago, they were pointing to traders anticipating a Fed rate cut.
There are going to be pauses when the market consolidates, and that's what we are seeing, said George Goncalves, chief Treasury/TIPS and agency strategist with Morgan Stanley in New York.
In other data, the government will release a report on business inventories, which analysts expect to have risen by 0.3 percent in April following a 0.1 percent decline in March.
At 2 p.m. (1800 GMT), the Fed will publish its Beige Book, which will offer a snapshot of the Fed's latest assessment of the regional economic conditions.
In other cash trading, two-year notes, which are most sensitive to traders' view on Fed policy, were unchanged in price to yield 5.11 percent.
Five-year Treasuries were up 6/32 in price for a 5.16 percent yield, while the long bond was up 1-3/32 in price to yield 5.32 percent.