October 13, 2017 / 1:18 PM / 10 months ago

TREASURIES-Yields drop as inflation data disappoints

    * Inflation benign in September; retail sales increase
    * 10-year Treasury yields lowest since Sept. 27

    By Karen Brettell
    NEW YORK, Oct 13 (Reuters) - U.S. Treasury yields fell to
two-week lows on Friday after consumer price data showed low
inflation, disappointing investors who had expected it was
    U.S. consumer prices recorded their biggest increase in
eight months in September as gasoline prices soared in the wake
of hurricane-related production disruptions at oil refineries in
the Gulf Coast area, but underlying inflation remained muted.
    Excluding the volatile food and energy components, consumer
prices gained 0.1 percent in September.             
    “There is really no fig leaf to cover up this notion that
inflation is weak, and it's weak in a very broad sense,” said
Aaron Kohli, an interest rate strategist at BMO Capital Markets
in New York. “The Fed has pointed to inflation bouncing back,
and there is no data to support that at the moment.”
    Benchmark 10-year notes             gained 11/32 in price to
yield 2.286 percent, the lowest since Sept. 27 and down from
2.323 percent on Thursday.
    Minutes from the Federal Reserve's September meeting
released on Wednesday showed policymakers had a prolonged debate
about the prospects of a pickup in inflation and the path of
future interest rate rises if it did not.             
    Ten-year yields had jumped to 2.402 percent on Oct. 6, their
highest level since May 11, after the government's employment
report for September showed a rise in wages that boosted
expectations for rising inflation.
    Analysts, however, have said that data was muddied by recent
hurricanes. Adverse weather is seen as impeding lower-income
people from getting to work more than it did higher-income
    Other data on Friday showed U.S. retail sales recorded their
biggest increase in 2-1/2 years in September, probably as
reconstruction and cleanup efforts in areas devastated by
Hurricanes Harvey and Irma boosted demand for building materials
and motor vehicles.             

 (Reporting by Karen Brettell; Editing by Lisa Von Ahn)
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