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NEW YORK (CNN/Money) -
Bonds fell Thursday as investors focused on a brisk retail sales report that took the wind out of a brief morning rally sparked by tame inflation numbers.
The dollar gained on the yen and was little changed against the euro.
In Treasuries, the benchmark 10-year note lost 4/32 of a point to 99-18/32 to yield 4.17 percent, up from 4.16 late Wednesday, while the 30-year bond fell 10/32 of a point 114-20/32 to yield 4.41 percent, up from 4.38 percent in the previous session. Treasury prices and yields move in opposite directions.
In shorter-dated government debt, the five-year note was flat to yield 3.97 percent, and the two-year note edged down one tick to yield 3.84 percent.
June retail sales came in stronger than expected, ramping up expectations that the Fed will raise interest rates in order to put the brakes on a strengthening economy and keep inflation in check.
"For the Fed, continuing 25-basis-point rate hikes seem to be the best bet," Elisabeth Denison, an economist at Dresdner Kleinwort Wasserstein, told Reuters.
Sales jumped 1.7 percent compared with a 0.5 percent decrease in May. Economists surveyed by Briefing.com had forecast retail sales would rise 0.9 percent in June.
Excluding auto sales, retail sales rose 0.7 percent versus expectations for a 0.5 percent increase.
Inflation hurts bonds as it erodes the value of the fixed interest-paying investment.
Also Thursday, the government said the Consumer Price Index, the broad measure of retail prices and a closely watched inflation gauge, showed no change in June, compared to a 0.1 percent decline in May. The result was less than the 0.3 percent rise forecast by economists surveyed by Briefing.com.
The so-called core-CPI, which excludes often volatile food and energy prices, was up 0.1 percent, the same increase posted in May. Economists were expecting a 0.2 percent rise in the closely watched core number.
The numbers indicated that inflation was well in hand and gave Treasuries a brief boost in morning trade, with the 10-year yield falling to 4.14 percent down from 4.17 just before the CPI release, but that rally did not have staying power.
In currency trading, the dollar was mixed in choppy trading as markets debated whether the reports would push the fed to continue its monetary tightening campaign. Higher interest rates boost the dollar because they make dollar-denominated assets more attractive to foreign investors.
The euro bought $1.2092, little changed from Wednesday, while the dollar bought ¥112.30, up from ¥111.89 in the previous session.
The Fed may boost short-term rates, but is it losing clout with the Treasury market? Click here for more.
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