• “The economy has been slowing with inflation in tow,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “Ultimately, the data will drive the Fed, and we like the lower rate story here in US Treasuries.”

(Bloomberg) — The Treasury market rallied after weak US retail sales data bolstered expectations for Federal Reserve interest-rate cuts beginning this year.

Yields declined across the maturity spectrum, led by the two-year note’s, which fell as much as 6 basis points to 4.70%, short of last week’s low 4.65%. The market-implied odds of a quarter-point rate cut by the Fed at its September meeting edged up to around 65%. A cut is fully priced in for November, and 46 basis points of easing is anticipated by year-end.

May retail sales were weaker than economists estimated, and April figures were downwardly revised in the latest evidence of emerging consumer fatigue that has helped Treasuries rally in recent sessions. US industrial production, meanwhile, increased in May. Yields for most tenors reached the lowest levels since early April on Friday.

“This may suggest the consumer is beginning to spend less, but be sure, they are still spending,” said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. “There are definitely paths to cut in September.”

New York Fed President John Williams said Tuesday the US economy is “moving in the right direction,” but declined to say when he would favor an interest-rate decrease. Richmond Fed President Thomas Barkin said this month’s inflation figures were “very encouraging.”

Several other Fed officials are slated to make public comments today, including Boston Fed President Susan Collins and Dallas Fed President Lorie Logan.

“The economy has been slowing with inflation in tow,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “Ultimately, the data will drive the Fed, and we like the lower rate story here in US Treasuries.”

An auction of 20-year bonds will test investor appetite at lower yield levels. The $13 billion sale at 1 p.m. New York time has a pre-auction yield of around 4.54%, nearly 10 basis points below last month’s result.

Meanwhile, JPMorgan’s Treasury client survey for the week through June 17 showed the most outright longs since June 3.

Bond investors have been grappling this year with the US economy’s resilience despite 11 Fed rate increases over the past two years, aimed at squelching inflation. While inflation has slowed, progress toward the central bank’s 2% long-term target has stalled, and early expectations for at least six quarter-point rate cuts this year have gradually fallen away.

Favorable inflation data for May released last week partially restored wagers on Fed easing, but other indicators suggest there’s no urgency. May employment data released June 7 showed persistently strong job creation, the S&P 500 and Nasdaq 100 US equity benchmarks are at record high levels, and companies are issuing bonds at a brisk pace.

Corporate new-issue volume has exceeded dealers’ expectations every month this year, and stood near $60 billion in June through Monday, vs a full-month forecast for $90 billion. A $21 billion borrowing binge by 13 borrowers on Monday was set to be followed by around 10 offerings Tuesday.