- The Labor Department said its Consumer Price Index rose 0.2 percent in April, missing Wall Street's forecast of a 0.3 percent rally.
- Bond supply continues to play a major role in fixed income markets, with the Treasury Department set to auction $17 billion in 30-year bonds.
U.S. government debt yields fell Thursday after a measure of inflation in the economy fell short of Wall Street's expectations.
U.S. consumer prices rallied less than expected in April as a rise in gasoline prices was offset by a moderation in health-care costs.
The Labor Department said Thursday that its Consumer Price Index rose 0.2 percent after slipping 0.1 percent in March, missing Wall Street's forecast of a 0.3 percent rally. For the year ended April, the CPI increased 2.5 percent, its largest gain in more than one year.
Excluding volatile food and energy components, the CPI ticked up 0.1 percent versus expectations of a 0.2 percent increase.
The Federal Reserve, tasked with keeping inflation around 2 percent, considers consumer pricing data when deciding whether to increase the benchmark federal funds rate. Despite the narrow CPI miss, personal consumption expenditures — the Fed's preferred inflation metric — is now near the central bank's target.
Rising inflation is a threat to Treasury prices because it erodes the purchasing power of their fixed payments, putting upward pressure on rates.
The yield on the benchmark 10-year Treasury note was lower at 2.966 percent at 4:27 p.m. ET following the softer CPI data, while the yield on the 30-year Treasury bond was lower at 3.112 percent. Bond yields move inversely to prices.
The Consumer Price Index "was a good bit softer, but one of the things about inflation in the short term is that it tends to move more randomly," said Guy Lebas, chief fixed income strategist at Janney Montgomery Scott. "I would look through any one-month data point and focus on a three-month or even six-month average."
Thursday's slip in rates can be largely attributed to the softer CPI data, but fair demand for 10-year Treasury notes also contributed to the daily move, Lebas added.
The Treasury Department auctioned $17 billion in 30-year bonds at a high yield of 3.13 percent. The bid-to-cover ratio, an indicator of demand, was 2.38. Indirect bidders, which include major central banks, were awarded 62.7 percent. Direct bidders, which includes domestic money managers, bought 8.3 percent.
The Treasury Department's auction of $31 billion in three-year notes Tuesday saw relatively weak demand, while the auction of $25 billion in 10-year notes saw stronger demand.
The department has been under increased pressure to fund the federal government's yawning budget deficit, opting to increase the size of its debt auctions and buoying rates as a result. Some investors fret that the gradually increasing supply of debt could keep rates higher if Wall Street continues to favor other asset classes.
In politics, the fallout following the U.S.' decision to exit the Iran nuclear deal continues to have an effect on markets, particularly energy.
Oil prices have been on the rise since the U.S. announcement and continued to extend gains on Thursday, with Brent hovering around $77.75 per barrel and U.S. crude around $71.70 during morning trade. Despite the U.S.' withdrawal, allies in Europe have been trying to salvage the Iran deal, and preserve their trade relations with the nation in the Middle East.
President Donald Trump and First Lady Melania welcomed a plane carrying three Americans, who were recently released by North Korea. The news is seen as an encouraging sign of better relations between the U.S. and Pyongyang.
—CNBC's Joumanna Bercetche contributed to this report