TREASURIES -US yields drift higher after solid round of US data

By Gertrude Chavez-Dreyfuss

NEW YORK, July 17 (Reuters) - U.S. Treasury yields rose modestly across most maturities on Thursday, briefly spiking after fresh data showed the world's largest economy remained on a stable footing, supporting the Federal Reserve's hesitance in resuming monetary policy easing.

In afternoon trading, the benchmark 10-year yield was flat to marginally higher at 4.459% US10YT=RR. It rose as high as 4.495% immediately after the data's release.

The 10-year yield has advanced 23.1 basis points (bps) over the past month and about 27 bps from a year earlier, driven by stronger-than-expected economic growth and tariff-related inflation concerns.

The U.S. 30-year yield also initially rose after the data, before falling slightly to 5.009% US30YT=RR. So far this month, the 30-year yield has climbed 24 bps.

The U.S. two-year yield, which tracks interest rate expectations, rose 3.2 bps to 3.917% US2YT=RR.

"I think there is a clear push and pull that is happening. The push from a rates upside is happening from the economic data, which is not as weak as feared by a lot of market participants," said Vishal Khanduja, head of broad markets fixed income at Morgan Stanley Investment Management in Boston.

Front-end yields, however, tumbled on Tuesday after media reports that U.S. President Donald Trump was planning to fire Powell soon. At the same time, long-dated rates soared, injecting volatility.

Trump in the end denied the reports, stabilizing rate moves after the initial gyrations. By Thursday, going into the deluge of data, calm had already set in the bond market.

Reports showed on Thursday that retail sales rose more than expected in June, advancing 0.6% last month after an unrevised 0.9% drop in May. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, edging up 0.1%.

"Despite uncertainty about the future and weak readings on consumer confidence, their response has been to buy more, different things rather than buy fewer," wrote Tom Simons, chief U.S. economist at Jefferies in emailed comments after the data.

"Consumers did not react to the tariff announcements or the resultant decline in financial markets or the weakness in business and consumer sentiment with defensive recoil. Instead, they went out and bought big ticket items with an opportunistic view."

Initial jobless claims also were better than expected, dropping 7,000 to a seasonally adjusted 221,000 for the week ended July 12, data showed. Economists polled by Reuters had forecast 235,000 claims for the latest week.

Another unexpectedly positive report was the Philadelphia Fed business conditions index for July, which rose to 15.9, a five-month high, up from a June reading of -4.0. The consensus forecast was for an index of -1.0.

U.S. import prices rose just 0.1% in June, compared with forecasts for a 0.3% rise, suggesting mild tariff-related impact. In the 12 months through June, import prices fell 0.2%, matching May's decrease.

Following the data, the rate futures market has reduced the amount of Fed easing this year to 43 bps, down from about 47 bps on Wednesday. Traders still saw a 50-50 chance for a rate cut in September.

In other parts of the bond market, the yield curve flattened to 54 bps US2US10=TWEB from 56.1 bps late on Wednesday. That was a pullback from the massive steepening on the initial reports of Trump's plan to fire Powell.

The curve hit 61.8 bps on Wednesday, the widest spread since April, reflecting a selloff in longer-dated debt on concerns about higher inflation should the Fed under a new chairman cut rates aggressively.