WASHINGTON, May 28 (Reuters) - Yields on benchmark U.S.

Treasury notes fell late Thursday morning following a media

report that the United States and Iran had made a breakthrough

in their efforts to end their three-month-old war.

The news site Axios reported Washington and Tehran had

reached an agreement on a memorandum of understanding to extend

a ceasefire pending further negotiations but were still awaiting

approval from U.S. President Donald Trump.

Earlier, yields had eased off session highs following a

batch of mixed economic data showing weaker growth and steady

inflation. The less-than-stellar economic 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."

Also on Thursday, Iran targeted a U.S. air base in Kuwait

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

fell 2.2 basis points to 4.459%. The yield on the

30-year bond fell 1.9 basis points to 4.992%.

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 43.9 basis points.

The two-year U.S. Treasury yield, which

typically moves in step with interest rate expectations for the

Fed, fell 1.5 basis points to 4.018%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.556% after closing at 2.551% on May 27.

The 10-year TIPS breakeven rate was last at

2.412%, indicating the market sees inflation averaging about

2.4% a year for the next decade.