U.S. Treasuries got hammered Tuesday on the heels of stronger-than-expected economic data, most notably retail sales.

The price of the benchmark 10-year Treasury fell 29/32 to 97 8/32, its yield rising to 4.35%, the highest level in more than three months. The 30-year bond was also dinged, with yields rising to 5.15% from 5.06%.

Rising Treasury yields contributed to widespread weakness in equities. Both asset classes reacted to the growing likelihood of Federal Reserve tightening sooner vs. later. In addition, higher yields undermine the relative attractiveness of stocks vs. Treasuries.

The fixed-income selloff was triggered by March retail sales that came in at 1.8%, which was much higher than the 0.7% the market was expecting. The strong March sales followed an upward revision of retail sales in February to 1% vs. 0.7% originally; January retail sales were also revised higher.

In addition, business inventories were reported to have risen 0.7% in February, above consensus expectations and a sign of growing optimism at corporations. Treasuries were also hurt by reports the U.S. government budget deficit widened to $72.7 billion in March from $58.9 billion in February. The supply of Treasuries is expected to rise sharply to help fund the yawning deficit; economists predict a record $177 billion in Treasuries will be put up for sale this quarter.

Paul Kasriel, director of economic research at Northern Trust, said the bond market was spooked, largely because it's getting more and more difficult to ignore the strong economic data that keep pouring in.

"What's happening is that we're beginning to get a string of stronger numbers," Kasriel said. "The strong employment data started it off, then the lower jobless claims last week."

Since the March employment data were released on April 2, yields on the 10-year note have risen 47 basis points.

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