(Updates prices, adds auction results, Waller comments) By Chuck Mikolajczak NEW YORK, May 13 (Reuters) - U.S. Treasury yields were lower on Thursday, with longer-dated yields falling after four straight days of gains even as a reading on inflation came in higher than expected, while weekly initial jobless claims fell more than anticipated. The Labor Department said its producer price index for final demand rose 0.6% in April, hotter than expectations calling for a rise of 0.3% but less than the 1% jump the prior month. For the 12 months through April, PPI is up 6.2%, the biggest year-over-year climb since the series was overhauled in 2010. Weekly initial jobless claims rose less than expected. The PPI comes on the heels of Wednesday's reading on consumer prices, which showed the biggest increase in nearly 12 years in April. "Investors are looking and saying, this is just one month’s data – is this going to be the trend? But the Fed is sticking to their mantra that any inflation we see short term is going to be transitory, it is going to be temporary, it is part of the reopening," said Eric Souza, senior portfolio manager at SVB Asset Management. "That is probably what the market is reassessing." Federal Reserve officials have repeatedly maintained they expect any rise in inflation to be short-lived. On Thursday, Richmond Fed President Thomas Barkin was the latest to downplay the likelihood of a long-term jump in inflation. In addition, Fed Governor Christopher Waller said he expects inflation to exceed the central bank's target of 2% for the next two years, but the Fed would not move to raise rates until inflation is above target for a long time, or excessively high. The yield on 10-year Treasury notes was down 3.2 basis points to 1.671% after climbing to a high of 1.707%, its highest since April 6. Yields moved off their lows in the wake of a $27 billion sale of 30-year bonds went poorly, according to analysts, with a high yield of 2.395%, almost 2 basis points above the yield at the bidding deadline and in contrast to a strong auction of $41 billion in 10-year notes on Wednesday. Some market participants have downplayed economic data, noting that year-over-year comparisons are extreme due to the severe economic shutdown that began in March 2020. The yield on the 30-year Treasury bond was down 1 basis points to 2.406%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.685% after closing at 2.731% on Wednesday, its highest close since April 2011. The 10-year TIPS breakeven rate was last at 2.543%, indicating the market sees inflation averaging 2.5% a year for the next decade. The overnight repo rate, which measures short-term borrowing costs, fell to 0% for the first time since April 28, from 0.01% on Wednesday. May 13 Thursday 2:32PM New York / 1832 GMT Price US T BONDS JUN1 156-1/32 0-14/32 10YR TNotes JUN1 132-44/256 0-64/256 Price Current Net Yield % Change (bps) Three-month bills 0.0125 0.0127 -0.002 Six-month bills 0.03 0.0304 -0.003 Two-year note 99-240/256 0.1569 -0.010 Three-year note 99-190/256 0.3366 -0.020 Five-year note 99-150/256 0.8354 -0.029 Seven-year note 99-152/256 1.3112 -0.032 10-year note 99-148/256 1.671 -0.032 30-year bond 88-196/256 2.4058 -0.010 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 10.50 0.25 spread U.S. 3-year dollar swap 11.25 0.00 spread U.S. 5-year dollar swap 8.00 -0.25 spread U.S. 10-year dollar swap -5.00 -2.00 spread U.S. 30-year dollar swap -33.00 -2.25 spread (Reporting by Chuck Mikolajczak; Editing by Hugh Lawson and Jan Harvey)
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