TREASURIES-US yields ease off highs on middling economic data

WASHINGTON, May 28 (Reuters) - Yields on benchmark U.S. Treasury notes retreated from earlier highs on Thursday morning following a batch of mixed economic data showing weaker growth, softening consumer income, steady inflation and falling orders in a key durable goods category.

Meanwhile markets continued to shrug off persistent violence in the US conflict with Iran as Washington and Tehran work toward an agreement.

The less-than-stellar numbers could ease pressure on the US central bank to maintain or raise interest rates.

"What the numbers point to today is simply that we have a stagflation problem," said Peter Cardillo, chief market economist at Spartan Capital Securities. "And that's a big problem for the Fed."

Meanwhile Iran targeted a U.S. air base in Kuwait on Thursday following a U.S. strike on what American officials called an Iranian drone operation near the Strait of Hormuz. The renewed violence underscored the fraught nature of negotiations to turn April's tenuous ceasefire into an agreement to end the three-month-old war that has choked global fuel supplies and clouded the outlook for U.S. monetary policy. The yield on the benchmark U.S. 10-year Treasury note was up 0.4 basis points to 4.485%. The yield on the 30-year bond had fallen 0.1 basis points to 5.01%. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 44.2 basis points. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 0.8 basis points to 4.041%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.571% after closing at 2.551% on May 27. The 10-year TIPS breakeven rate was last at 2.423%, indicating the market sees inflation averaging about 2.4% a year for the next decade. (Reporting by Douglas Gillison in Washington; additional reporting by Stephen Culp in New York Editing by Nick Zieminski)