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TREASURIES-U.S. yields slip as weak data curb inflation fears

·3-min read

(Updates prices, adds remarks) By Herbert Lash NEW YORK, May 14 (Reuters) - Treasury yields slid on Friday after U.S. retail sales unexpectedly stalled in April as the boost from government stimulus checks faded and bond investors heeded the Federal Reserve's view that a jump in inflation will be temporary. The yield on benchmark 10-year U.S. Treasury notes fell 2.4 basis points to 1.644%, roughly midpoint of a trading range its held after briefly spiking above 1.7% in mid-March. The unchanged reading in retail sales last month followed a 10.7% surge in March, which was revised upward on Friday from a previously reported 9.7% increase, the Commerce Department said. The jump in the consumer price index on Wednesday put investors on alert that inflation could shoot above the Fed's 2% target and force the U.S. central bank to boost interest rates sooner that policymakers have indicated. The weak retail sales curbed long-term fears of inflation, despite a solid increase in U.S. import prices in April that Labor Department data on Friday also showed. "What you're seeing here is the validation of the Fed's interpretation that any demand side pull in prices will be temporary because the demand will fall off as the checks wind down," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities LLC. "The bond market, on a very bad inflation number, couldn't push above the range and probably is not going to be able to," Ricchiuto said of the CPI data earlier in the week. A separate Fed report on Friday showed manufacturing output rose moderately in April, with motor vehicle production declining amid a global semiconductor shortage. Part of the jump in year-over-year consumer price data this week reflected a comparison with weak readings a year ago during the economic downturn caused by the pandemic. Fed policy is in a good place at the moment, Cleveland Fed President Loretta Mester said on Friday, while playing down economic signals from data that she warned will be volatile as the economy reopens, Bloomberg News reported. Despite the Fed's insistence inflationary pressures will be transitory, many investors see surging commodity prices, disrupted supply chains and the need to pay higher wages to attract workers as fueling higher inflation. "We are more in the camp of accelerating not transitory inflation," said Jay Hatfield, founder and chief executive of Infrastructure Capital Management in New York. "They are more wrong than right," Hatfield said of the Fed. "So if they say inflation is transitory, that means that it is probably going to accelerate." The yield on the 30-year Treasury bond was down 2.5 basis points to 2.362%. The break-even rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) edged higher to 2.69% from Thursday's close of 2.671%. The 10-year TIPS break-even rate was last at 2.543%, indicating the market sees inflation averaging 2.5% a year for the next decade. May 14 Friday 2:17PM New York / 1817 GMT Price Current Net Yield % Change (bps) Three-month bills 0.01 0.0101 -0.003 Six-month bills 0.03 0.0304 0.000 Two-year note 99-242/256 0.153 -0.006 Three-year note 99-192/256 0.334 -0.005 Five-year note 99-162/256 0.8258 -0.011 Seven-year note 99-184/256 1.2924 -0.019 10-year note 99-216/256 1.642 -0.026 20-year bond 93-232/256 2.2591 -0.012 30-year bond 100-72/256 2.3619 -0.025 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 10.50 0.50 spread U.S. 3-year dollar swap 11.75 0.50 spread U.S. 5-year dollar swap 8.25 0.50 spread U.S. 10-year dollar swap -4.00 1.75 spread U.S. 30-year dollar swap -32.25 2.00 spread (Reporting by Herbert Lash, additional reporting by Chuck Mikolajczak; editing by Barbara Lewis and Nick Zieminski)