A source from the Wise Finance App has learned that the unexpectedly strong July retail sales data released on Thursday eased concerns about a US economic recession, causing the 2-year Treasury yield, which is sensitive to policies, to record its largest daily gain in four months.

The two-year Treasury yield increased by 15 basis points to 4.099%, the largest single-day increase since April 10, while the 10-year Treasury yield rose by 10.3 basis points to 3.924%, indicating that market confidence in the economic outlook has improved. The growth of consumer spending and the resilience of the economy have increased market confidence and also boosted all three major US stock indices, with the Dow Jones Industrial Average rising 554.67 points and the S&P 500 Index and the Nasdaq Composite Index rising for the sixth consecutive trading day.

The trend of Treasury yields is closely related to market participants' expectations for the economic outlook, which was particularly evident throughout August. Therefore, when yields rise due to good economic data, such as the 1% increase in retail sales last month, it helps stimulate market risk appetite. One of the biggest issues facing market participants is whether the Fed can successfully implement a rate cut cycle similar to the mid-1990s, when the US economy avoided a recession while inflation slowed.

Mark Streiber, an economic analyst at FHN Financial in New York, said Thursday's retail sales report "far exceeded expectations" and eased concerns of a recession that have gradually spread to the bond market in recent weeks. He added: "Although concerns about recession have not been completely eliminated, the worries have clearly eased since the July employment report was released, when you saw significant selling in the Japanese and US stock markets and a sharp drop in US Treasury yields."

In early August, people were becoming increasingly uneasy about almost everything happening in the economy, with market yields falling, particularly before the release of non-farm payroll data on August 2. The report showed only 114,000 new jobs added in July, prompting yields to fall further - the 10-year Treasury yield fell to 3.782% on August 5, the lowest level since July 19, and the Dow Jones index plummeted 1,033.99 points, the biggest single-day drop since September 13, 2022.

Since last week, bond market sentiment has been volatile. Signs suggest that recession anxiety may have been exaggerated, leading to the largest monthly increases in two-year, ten-year and thirty-year Treasury yields since at least a month. However, in the following days, due to tensions in the Middle East as well as modest inflationary data from producer and consumer price indices in July, long-term bond yields fell again until Wednesday.

On Thursday, yields soared again, with the two-year Treasury yield rising by 16.9 basis points to a high of 4.117%, while the benchmark 10-year yield also rose by 13.1 basis points to briefly touch 3.952%.

Despite the strong data on Thursday, including the lowest number of weekly jobless claims since early July, federal funds futures traders still expect the Fed's rate path to plunge sharply until mid-2025. However, traders have lowered their expectations for a half-percentage-point rate cut by the Fed next month.

Streiber said on the phone that the July employment report may have been distorted by Hurricane Barry's impact on the Texas and Gulf Coast. At the same time, he said, "We may see increased market volatility before the Fed publicly commits to rate cuts in September," and market participants "will seize any opportunity that supports their stance."

Aditya Bhave, an economist at Bank of America, said July's retail sales data were consistent with their "soft landing" economic outlook.

Bhave wrote in a report, "We don't believe it is necessary to carry out a super-large or accelerated rate cut." He added, "We still believe the Fed will only cut interest rates twice this year, by 25 basis points each time, in September and December."