Several readings on the U.S. economy arrived mixed Thursday morning, complicating the market's task of divining the future of interest rate policy. Bonds' reaction was initially muted after yields on the 10-year Treasury note breached a key technical level in overnight trading.

Separate government reports showed producer prices posting a 0.7% increase last month, and a 0.2% increase excluding food and energy. Economists had been looking for gains of 0.3% on both bases. Overall April retail sales fell 0.5%, while retail sales excluding automobiles fell 0.1%. Economists had forecast an overall decline of 0.2% and an ex-auto decline of 0.2%.

The headline increase in the producer price index was the highest monthly gain in a year, reflecting the upward pressure of oil prices, which continued to rise Thursday morning. But with core inflation looking tame, traders appeared comfortable with their expectations for a gradual

Fed

tightening over the next several months.

Meanwhile, a Labor Department update showed that 331,000 people filed initial claims for jobless benefits last week, about 6,000 more than expected.

Recently, the government's 10-year Treasury was trading down 1/32 from last night, pushing the yield up to a 20-month high of 4.81%. Fixed-income markets have been whipped around over the previous two sessions by waves of economic stimuli that have coincided with the government's quarterly bond auction, in which $54 billion of new paper is being sold.

The refunding concludes Thursday with the sale of $15 billion of new 10-year notes.