TREASURIES-Bonds up as reach for yield trumps supply worry

* Bonds bounce back from Tuesday's supply-inspired losses

* $20 billion sale of reopened 10-year notes at 1 p.m.

* Investors look past auction in reach for yield

By Burton Frierson

NEW YORK, Oct 7 (Reuters) - U.S. Treasury debt prices rose on Wednesday as bargain hunters lifted the market, shrugging off worries over this week's $78 billion worth of bond auctions.

The Treasury will sell $20 billion worth of 10-year notes at 1 p.m. (1700 GMT) in a reopening of securities originally issued on August 17. It is the third of four auctions this week that will culminate in Thursday's offering of 30-year bonds.

Bonds have rallied in seven of the last eight weeks, creating a challenge for auctions in a market that appears expensive. But bonds are still benefiting from investors eager to secure yields in an uncertain economic environment.

"I'm not hearing any real concern about the auction today, and demand for yield remains on-going," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

"There is so much money that needs to be invested that as innately bearish as I am on the Treasury market, I think this hoard of cash is going to keep a bid in for some time."

Benchmark 10-year notes US10YT=RR were last up 12/32 in price, yielding 3.21 percent versus 3.26 percent at Tuesday's close.

Profit-taking in recent days pushed benchmark yields up from Friday's 4-1/2-month low of 3.11 percent, though not by much.

THE HOARDS

Ideas vary on the sources of the "hoard of cash" in search of yields, from money still sitting in cash after last year's financial markets meltdown, to aging baby boomers making a transition from the relative risk of stocks to the certainty of fixed-income yields.

The post-crisis view has been supported by data on money market funds, which are relatively low yielding, especially now with the Federal Reserve benchmark interest rate near zero.

Total money market mutual fund assets decreased by $53.52 billion to $3.429 trillion, according to data released last Thursday by the Investment Company Institute for its latest week of reporting.

Despite the surfeit of cash finding its way into the bond market, Treasuries may still be set for a reversal around the time of the 10-year auction, as happened before Tuesday's sale of three-year notes.

Even after profit-taking in recent days, Tuesday's sale attracted tepid demand because of perceptions that the market is expensive. Though the market firmed on Wednesday, analysts said a last-minute selloff to cheapen up auction conditions remained a risk.

"The price action is certainly constructive for the market, but it is less obviously so for the two final legs of this week's supply," said David Ader, head of government bond strategy at CRT Capital in Stamford, Connecticut.

"We struggle to see how the auction goes smoothly without a meaningful concession from the current levels."

In other trade, 30-year long bonds US30YT=RR were up 25/32 in price, yielding 4.03 percent versus Tuesday's close of 4.07 percent. (Editing by Padraic Cassidy) (burton.frierson@thomsonreuters.com;+1 646-223-6292; Reuters Messaging: burton.frierson.reuters.com@reuters.net))