TREASURIES-Higher yields seen needed for auctions

* Two-year notes price with 1 bp tail in $35 bln auction

* Bidders may seek higher yields for 5, 7-yr note sales

* End of Fed's QE program seen weighing on Treasuries

(Adds quote, updates prices, recasts throughout)

By Karen Brettell

NEW YORK, March 28 (Reuters) - U.S. Treasuries yields rose on Monday after the first Treasury auction in three weeks of two-year notes indicated higher yields may be needed on this week's five-year and seven-year note sales to attract bidders.

A $35 billion sale of two-year notes US2YT=RR priced one basis point wider than where the notes had traded ahead of the sale, though bidding by indirect bidders was relatively strong at around 33 percent.

The Treasury will also sell $35 billion in five-year notes US5YT=RR on Tuesday and $29 billion in 7-year notes US5YT=RR on Wednesday.

"I think with this auction coming with a little bit of a tail it will be a little bit of a defensive tone going into those auctions," said Tom Tucci, head of government bond trading at RBC Capital Markets in New York.

That said, Monday's auction price is not a significant miss as much of the higher yield may be due to investors cleaning up balance sheets for quarter end, he said.

For details of the auction, see [ID:nTAR000205]

Two-year notes were last down 2/32 in price to yield 0.78 percent, up from 0.74 percent late on Friday and five-year notes were down 6/32 in price to yield 2.20 percent, up from 2.16 percent.

Seven-year notes fell 7/32 in price to yield 2.87 percent, up from 2.84 percent on Friday, and benchmark ten-year notes dropped 4/32 in price to yield 3.46 percent, up from 3.44 percent.

Meanwhile debate over whether the Fed should end its quantitative easing program early in June has also weighed on Treasuries, even though most investors believe the central bank will complete the $600 billion program through June.

"People are discounting that into the market, some kind of division over where QE ends," Tucci added.

Charles Plosser, the president of the Federal Reserve Bank of Philadelphia, who is a non-voting Fed member, said on Friday that the Fed will need to reverse its easy money policy in the "not-too-dustant future" in order to avoid inflation. [ID:nDZE7DA02M]

(Additional reporting by Ellen Freilich; Editing by Andrew Hay)