Treasury Yields Fall On Weak Inflation, Retail Sales

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"Coupled with ongoing soft inflation data, continued weakness on the consumer side suggests the Fed's conviction for a second-quarter rebound was but a figment of monetary policy imagination", said Lindsey Piegza, chief economist at Stifel Nicolaus. Inflation came-in flat versus an expected.2% gain, and retail sales fell by.2% against the expectation for a.1% gain.

Investors are paying especially close attention to inflation readings after hawkish signals from the Fed and, even more so, from the European Central Bank tripped up markets in late June, sending technology stocks including Amazon (AMZN) into a brief tailspin.

UK's benchmark FTSE 100 closed down by 0.7 percent, the pan-European FTSEurofirst 300 ended the day down by 0.01 percent, Germany's Dax ended down by 0.2 percent, France's CAC finished the day down by 0.1 percent. The British pound rose sharply against the greenback on Friday, climbing more than 1 percent after data further undermined expectations for more hikes in USA interest rates.

U.S. Treasuries yields stayed below their recent peaks, with the 10-year yield at 2.360 per cent, compared to 2.398 per cent marked on Friday, its loftiest level in nearly two months.

Other US data releases today pertained to June retail sales, a measure acting as a proxy for consumer spending. The Commerce Department said on Friday retail sales fell 0.2 percent last month.

The benign inflation rate "could cast doubts on the Federal Reserve's ability to increase interest rates for a third time this year", CNBC said. Those include expectations for another quarter-point rate hike in December and the start of "quantitative tightening" in September, or a reduction of the Fed's $4.4 trillion balance sheet.

The Dow Jones Industrial Average .DJI rose 84.65 points, or 0.39 percent, to 21,637.74. After initially falling below 2.3%, the 10-year yield climbed back above that level, reflecting strong forces that are still pushing up on yields, analysts said. It was the yield's largest weekly decline since the week ended June 2. The yield on the 30-year bond, or the long bond, TMUBMUSD30Y, -0.85% fell 3.1 basis points to 2.888%.

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The disappointing data supported the caution raised this week by several policy-makers, including Fed Chair Janet Yellen about the softening in inflation since February.

Spot gold gained 0.96 pct at $1,228.61 per ounce by 3:01 p.m. EDT (1901 GMT) after hitting $1,232.76.

The New Zealand dollar another high-earning currency that has gained from significant risk appetite this week, shed 0.02 percent to 0.7318 after reaching an eight-month peak of 0.7369 on Thursday.

For the week, silver is on track for a gain of around 1.5%.

Oil prices held firm after strong gains on Tuesday on reports showing cuts in USA oil production and declines in US crude and European product stockpiles. Brent crude, used to price global oils, was flat at $48.42 per barrel in London.

West Texas Intermediate (WTI) crude futures settled up 46 cents, or 1 percent, at $46.54 per barrel.

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