Treasury prices rose Monday, extending the biggest weekly rally in more than a year, as slower-than-forecast growth in retail sales in June added to signs of a second-quarter slowdown in the U.S. economy.

Yields on benchmark 10-year notes dropped after Commerce Department figures showed a 0.4 percent gain in retail sales, compared with a median forecast of a 0.8 percent in a Bloomberg survey of 82 economists. Federal Reserve Governor Daniel Tarullo said any slowing of central-bank asset buying would depend on economic gains. Fed Chairman Ben S. Bernanke delivers to his semi-annual monetary-policy testimony to Congress on Wednesday and Thursday.

“Today’s data underscores the weak gross-domestic-product scenario -- the consumer is still extremely cautious,” said Richard Gilhooly, an interest-rate strategist at TD Securities Inc. in New York. “Things have recovered more tentatively than the Fed would like. We have quite a while before the economy will have gained real traction.”

Ten-year yields fell five basis points, or 0.05 percentage point, to 2.54 percent at 5 p.m. New York time after rising to 2.64 percent, Bloomberg Bond Trader data showed. The 1.75 percent note due May 2023 gained 3/8, or $3.75 per $1,000 face amount, to 93 6/32.

The yield fell 16 basis points last week, the biggest five-day drop since the period ended June 1, 2012.

Treasury prices declined 2.5 percent in the first half of the year, the most since 2009, according to Bank of America Merrill Lynch index data. They advanced 0.6 percent last week.

Volatility, Volume

Volatility in Treasurys as measured by the Merrill Lynch Option Volatility Estimate MOVE Index was at 89.4, the lowest level since June 19. The figure is down from 117.89 on July 5, the highest since December 2010. The one-year average is 64.38.

Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, dropped 27 percent to $188 billion from $258.5 billion July 12. The 2013 average is $321 billion.

The 10-year yield’s 14-day relative strength index fell to 58 after rising to 77 on July 5, above the 70 level some traders see as a sign that a reversal is imminent.

Tarullo, who has always voted in favor of bond purchases by the Fed, said Monday in Washington that changes in the monthly amount of purchases are “data driven, dependent on the economy, as we see the economy develop then we will make our judgment.”

‘Very Accommodating’

“We are not specifying no matter what happens on this particular date we are going to have a change in the flow,” he said. “It will still be a very accommodating policy.”

Bernanke said last month the central bank may begin to slow its $85 billion in monthly bond purchases this year and end them in 2014 if economic growth meets policy makers’ goals. He said July 10 that the U.S. needs “highly accommodative monetary policy for the foreseeable future.”

“The story is still about Bernanke,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “We expect him to reiterate that the Fed is currently in a data-dependent mode and the improvement in the labor market will be the primary focus as they decide on the timing for tapering quantitative easing. He will stress the difference between tapering and tightening.”

A Labor Department report Tuesday will show the consumer price index excluding food and energy costs climbed 1.6 percent in the 12 months through June, the smallest gain in two years, another survey of analysts shows.

TIPS Auction

The difference in yield between 10-year notes and TIPS, a measure of trader expectations for inflation over the life of the debt called the break-even rate, was at 2.08 percentage points after shrinking to 1.81 percentage points on June 24, the narrowest since October 2011. The 2013 average is 2.37 percentage points.

The U.S. is scheduled to sell $15 billion in 10-year TIPS on July 18. The Treasury previously sold $13 billion of the securities on May 23 at a yield of negative 0.225 percent, the highest yields in 14 months.

While the rate on 10-year Treasurys has risen from as low as 1.61 percent in May, the term premium, which measures the risk of holding longer-dated bonds by incorporating investors’ outlook for inflation and growth, suggests they are no longer overvalued. The term premium reached 0.46 percent this month, compared with the 0.40 percent average in the decade before the 2007 financial crisis and the Fed’s efforts to pump cash into the economy by purchasing bonds, according to Columbia Management Investment Advisers LLC.

“We actually just bought Treasurys because we think we are pretty close to that equilibrium price,” Jack McIntyre, a money manager who oversees $44.5 billion at Brandywine Global Investment Management LLC in Philadelphia, said in a July 9 telephone interview.