* Bank of England surprises with no rate cut * US data shows faster inflation, improving labor market By Karen Brettell NEW YORK, July 14 (Reuters) - U.S. Treasuries weakened on Thursday after the Bank of England kept interest rates unchanged, surprising investors who had expected the first rate cut in more than seven years, and as U.S. data showed rising inflation.
Expectations of more stimulus from international central banks has improved risk appetite in the past week, helping propel U.S. stocks to records.
U.S. bonds have also benefited from falling yields globally as investors turn to longer-dated Treasuries to generate yield, even as safety buying from Britain’s decision to leave the European Union fades.
The Bank of England held interest rates steady but said it was likely to deliver stimulus in three weeks’ time, possibly as a “package of measures.” “There was some disappointment from the lack of a rate cut from the Brits,” said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
At the same time, an improving U.S. economic picture has raised expectations that the Federal Reserve may raise rates again later this year, making it difficult to justify yields that are still holding near record lows.
U.S. data on Thursday showed that U.S. producer prices recorded their biggest gain in a year in June.
The number of Americans filing for unemployment benefits unexpectedly also held at lower levels last week, pointing to further momentum in the labor market after job growth surged in June.
Benchmark 10-year notes were last down 22/32 in price to yield 1.542 percent, up from 1.467 percent on Wednesday.
The notes hit record low yields of 1.321 percent last week on concerns about slowing global growth, which were accelerated by Britain’s vote to depart the EU.
Some profit taking from the recent rally was also seen weighing on Treasuries on Thursday, with the market continuing to absorb $56 billion in new coupon-bearing supply this week.
“After all the auctions the market is repricing itself a little bit,” Comiskey said.
Markets were also whipsawed on Thursday by speculation over whether Japan will adopt new stimulus measures to stave off deflation.
Bloomberg reported that ex-Federal Reserve chief Ben Bernanke raised the idea of the Japanese government selling perpetual bonds to the Bank of Japan, in a meeting with one of Prime Minister Shinzo Abe’s key advisors.
Government and central bank officials directly involved in policymaking told Reuters that there is no chance that Japan will adopt this plan any time soon.
(Editing by W Simon)