REFILE-TREASURIES-US yields ascend as mixed data underpins rate hike view

(Refiles to reflect late afternoon trading, instead of midday trading, paragraph 10) * U.S. retail sales, import prices fall more than expected * U.S. one-year inflation outlook rises -UMich report * U.S. rate futures price in 25-bp hike in May * Rates need to go up to get to 2% inflation target -Fed's Waller * Fed's Goolsbee says U.S. recession possible this year By Gertrude Chavez-Dreyfuss NEW YORK, April 14 (Reuters) - U.S. Treasury yields rose on Friday as a mixed batch of data suggested that the world's largest economy is not slowing quickly enough to deter the Federal Reserve from raising interest rates yet again at the next policy meeting. Data showed U.S. retail sales dropped 1.0% last month. Economists polled by Reuters had forecast a 0.4% decline. But February numbers were revised to show sales falling 0.2% instead of the 0.4% slide. Core retail sales also slipped in March, but they were up in January and February. Despite March's fall, the rise in January and February has placed consumer spending firmly on pace to expand in the first quarter. At the same time, U.S. consumer sentiment edged higher this month to 63.5, according to the University of Michigan's preliminary survey for April. Households though expected inflation to rise over the next 12 months. The survey's reading of one-year inflation expectations rose to 4.6%, from 3.6% in March. "The economy seems fairly resilient to rate hikes," said John Luke Tyner, portfolio manager and fixed income analyst at Aptus Capital Advisors in Fairhope, Alabama. "So unless there is a real downturn in employment and jobs, it's pretty unlikely that the Fed is able to get inflation back down to 2%." Comments by Fed Governor Christopher Waller on Friday, saying higher borrowing costs were needed to restore inflation to the Fed's 2% target, further raised the rate-increase outlook and reduced bets of easing this year. Data also showed U.S. import prices fell more than expected in March, resulting in the biggest year-on-year decline since mid-2020, offering further evidence that inflation pressures are subsiding. Following the data, U.S. rate futures have priced in a more than 80% chance of a 25 bps hike next month. That probability was about 70% late on Thursday. In late afternoon trading, U.S. 10-year yields climbed 6.4 bps to 3.513%. On the week, 10-year yields posted their best gain since mid-February. U.S. 30-year yields rose 5.8 bps to 3.743%. For the week, the yields had their largest increase in two months. On the short end of the curve, U.S. two-year yields also gained, rising 11.6 bps to 4.092%. "Rate moves are commensurate to expectations that the Fed is going to have to hike in May," said Thierry Wizman, global FX and rates strategist at Macquarie in New York. The U.S. yield curve, meanwhile, deepened its inversion on Friday, suggesting traders believe there could be another hike coming after the May meeting. The spread between the U.S. two-year and 10-year yields widened to -58.20 bps , from -52.80 bps late Thursday. The inversion of this curve typically signals looming recession, predicting eight of the last nine slowdowns. Chicago Fed President Austan Goolsbee said on Friday a recession in the United States this year was certainly feasible as the Fed's rate-hike moves fully filter through the economy. "More important than the activity data slowing is that we are in a significant disinflation and everything that pertains to trends for business costs in the U.S. whether they're for goods and services, is pointing to less cost inflation," Macquarie's Wizman said. "For the Fed, it's not just about the activity numbers weakening, it's whether or not they see pipeline inflation falling. I would say pipeline inflation is consistent with potentially core inflation going below Fed projections." April 14 Friday 4:07PM New York / 2007 GMT Price Current Net Yield % Change (bps) Three-month bills 4.9525 5.0821 0.054 Six-month bills 4.82 5.02 0.073 Two-year note 99-153/256 4.0905 0.113 Three-year note 99-204/256 3.8224 0.105 Five-year note 100-32/256 3.5969 0.090 Seven-year note 100-116/256 3.5507 0.071 10-year note 99-228/256 3.5128 0.062 20-year bond 100-92/256 3.8486 0.054 30-year bond 98-4/256 3.7357 0.050 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 29.75 -0.75 spread U.S. 3-year dollar swap 18.50 0.00 spread U.S. 5-year dollar swap 6.75 -0.75 spread U.S. 10-year dollar swap -1.75 -0.50 spread U.S. 30-year dollar swap -43.50 -0.25 spread (Reporting by Gertrude Chavez-Dreyfuss in New York Editing by Mike Harrison and Matthew Lewis)