TREASURIES-US yields rise before retail sales, import price data

By Karen Brettell

June 16 (Reuters) - U.S. Treasury yields rose on Monday, ahead of key economic data on retail sales and import prices on Tuesday, and the Federal Reserve's policy meeting, capped by its release of updated economic and interest rate projections on Wednesday.

Economists expect Tuesday's data to show that import prices fell 0.2% in May, compared with a 0.1% gain the prior month. The figures will feed into the Personal Consumption Expenditures Index due later this month, which is the Fed's preferred inflation measure. Retail sales are expected to decline 0.7% on the month. USIMP=ECI, USRSL=ECI

The U.S. central bank is expected to keep rates unchanged when it concludes its two-day meeting on Wednesday, but traders will focus on policymakers' updated interest rate projections for this year.

"Everyone is going to be focused on the 2025 dot - whether or not that gets revised from 50 basis points" in cuts, said Vail Hartman, U.S. rates strategist at BMO Capital Markets in New York.

Fed officials have indicated that they may keep rates higher for longer on concerns that the Trump administration's tariffs will lead to an uptick in inflation.

Fed funds futures traders are pricing in a 65.2% probability of 50 basis points or more in rate cuts by December, a 28.2% likelihood of one 25-basis-point cut and a 6.6% chance the Fed will leave rates unchanged, according to the CME Group's FedWatch Tool.

Trading on Monday was choppy and largely range-bound as investors digested different trading narratives.

The yields briefly dipped earlier on a report that Iran is seeking to end hostilities with Israel. That sent oil prices lower and eased concerns that a prolonged conflict will disrupt oil supplies and lead to higher inflation.

Yields jumped on Friday in line with higher oil prices as the conflict intensified. An Israeli strike hit Iran's state broadcaster on Monday while the head of the U.N. nuclear watchdog indicated extensive damage to Iran's biggest uranium enrichment plant.

The dispute so far, however, has been relatively contained and has not increased safe-haven demand for U.S. Treasuries.

"It's an isolated thing between Iran and Israel. Obviously, if it escalated beyond that, then it would be a bigger issue," said Dan Mulholland, head of rates - sales and trading, at Crews & Associates in New York.

A $13 billion sale of 20-year bonds, meanwhile, saw solid demand, easing concerns that foreign investors may be stepping away from the market on concerns about the impact of Trump's tariff policies.

"June's 10-, 20-, and 30-year supply, generally speaking, has seen solid demand from end users," said BMO's Hartman. "The primary market continues to offer no clear evidence of a buyer's strike for Treasuries."

The 20-year bonds sold at a high yield of 4.942%, close to where they were trading before the auction. Demand was 2.68 times the amount of debt on offer, the best ratio since March.

Longer-dated debt has become less attractive to some investors due to concerns about the longer-term U.S. fiscal outlook, which has pushed their yields higher relative to shorter-dated notes over the past few months.

The 20-year bond yield US20YT=RR was last up around 3.5 basis points at 4.969%.

The yield on benchmark U.S. 10-year notes US10YT=RR rose 2.4 basis points to 4.448% and the 30-year bond US30YT=RR yield rose 3.7 basis points to 4.951%.

The yield on the interest rate-sensitive 2-year note US2YT=RR rose 0.6 basis points to 3.964%.

The yield curve between two-year and 10-year notes US2US10=TWEB steepened by around 3 basis points to 48 basis points.

The U.S. government will also sell $23 billion in five-year Treasury Inflation-Protected Securities on Tuesday.

The bond market will be closed on Thursday for the federal Juneteenth holiday.