TREASURIES-Fall in Asia, get little reprieve after sell-off

By Masayuki Kitano

TOKYO, May 14 (Reuters) - U.S. Treasuries fell on Wednesday, getting little reprieve after sliding the previous day as solid retail sales data helped underscore expectations that the Federal Reserve would take a pause from lowering interest rates.

Treasuries also fell after various Fed officials on Tuesday expressed concerns about inflation, which will be a focal point later in the day when investors take cues from data on consumer prices for April.

A growing perception that the worst of the credit market turmoil might be over has also helped drag Treasuries lower, said a trader for a European investment bank.

"Things might not be back to normal, but market players seem to think that the worst may be over for financial markets," the trader said.

"Ten-year Treasuries may no longer find support even if yields rise to 4 percent," he said, adding that benchmark 10-year yields could climb towards 4.250 percent if the psychologically key 4 percent level is breached.

Benchmark 10-year Treasury notes fell 4/32 in price to yield 3.928 percent US10YT=RR, up 1.5 basis points from late U.S. trading on Tuesday.

The two-year note fell 1/32 in price to yield 2.494 percent US2YT=RR, up 2 basis points from late New York.

The 10-year Treasury yield briefly rose to around 3.940 percent earlier on Wednesday as Japanese government bonds fell sharply, with 10-year JGB futures plunging by as much as 1.83 point to a seven-month low of 134.28 2JGBv1. [JP/]

Data on Tuesday showed that retail sales, excluding cars, rose by a more-than-expected 0.5 percent in April. [ID:nN13373768]

Cleveland Fed President Sandra Pianalto said on Tuesday that core inflation measures are rising faster than she liked and called inflation "a key risk," while Dallas Fed President Richard Fisher said it was unclear whether a slowing U.S. economy would be enough to alleviate cost pressures. [ID:nN13441127]

Investors now expect the Fed to take a pause from lowering interest rates for a while, and to raise interest rates later in the year.

Short-term U.S. interest rate futures are now implying a roughly 95 percent chance of the Fed keeping interest rates unchanged at 2 percent at its policy meeting in June. FEDWATCH

The rate futures are also show that market players expect the Fed to raise interest rates to 2.25 percent by year-end.

Headline inflation as measured by the consumer price index likely rose 0.3 percent in April versus March, according to the median forecast in a Reuters survey.

Core CPI, which excludes volatile food and energy prices, likely increased by 0.2 percent in April. (Editing by Hugh Lawson)