(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
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
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
"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
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
U.S. 2-year dollar swap 10.50 0.50
U.S. 3-year dollar swap 11.75 0.50
U.S. 5-year dollar swap 8.25 0.50
U.S. 10-year dollar swap -4.00 1.75
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)