Short-dated U.S. Treasures rallied after weak July retail sales further eroded
market expectations for Fed rate hikes in coming months, pushing the two-year
yield briefly below 4.10%, its lowest since June 30. The move was concentrated
in the policy-sensitive short end; 10- and 30-year yields ticked slightly
higher. BMO Capital Markets U.S. rates strategist Ian Lyngen called the print a
troubling update on consumer health and said it strengthens the case for the Fed
to pause next month. Short-term rate contracts show traders scaling back bets on
a September hike and on more than one hike by mid-2027. The pullback in
tightening expectations accelerated over the past week after weak July payrolls
on Aug. 7 and was reinforced this week by moderate July CPI and PPI readings.
