October 13, 2017 / 7:03 PM / a year ago

TREASURIES-Yields drop as inflation data disappoints

 (Adds Trump on Iran, Yellen appearance; Updates prices)
    * Inflation benign in September, retail sales increase
    * 10-year Treasury yields lowest since Sept. 27
    * Trump warns on Iran nuclear agreement

    By Karen Brettell
    NEW YORK, Oct 13 (Reuters) - U.S. Treasury yields fell to
two-week lows on Friday after consumer price data showed still
benign inflation, disappointing investors who had expected it to
    Excluding the volatile food and energy components, consumer
prices gained 0.1 percent in September. In the 12 months through
September, the so-called core CPI increased 1.7 percent.
    The year-on-year core CPI has now advanced by the same
margin for five consecutive months.
    “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.”
    Geopolitical concerns also added a safety bid for Treasuries
on Friday after U.S. President Donald Trump chose not to certify
that Tehran is complying with the 2015 Iran nuclear agreement,
in defiance of other world powers, and warned he might
ultimately terminate it.             
    Benchmark 10-year notes             gained 13/32 in price to
yield 2.278 percent, the lowest since Sept. 27, and down from
2.323 percent on Thursday.
    Other data on Friday showed that U.S. retail sales recorded
their biggest increase in 2-1/2 years in September, likely as
reconstruction and clean-up efforts in areas devastated by
Hurricanes Harvey and Irma boosted demand for building materials
and motor vehicles.             
    Ten-year yields had jumped to 2.402 percent last Friday, the
highest level since May 11, after the government's employment
report for September showed a rise in wages that boosted
expectations for a jump in inflation.
    Analysts, however, have said that data was muddied by recent
hurricanes. Adverse weather is seen as having impeded
lower-income workers from getting to work more than it did
higher-income workers.
    Minutes from the Federal Reserve's September meeting
released on Wednesday showed that Fed 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.
    Fed Chair Janet Yellen is due to speak on Sunday at an event
in Washington on global economic growth.

 (Editing by Chizu Nomiyama)
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