(Updates with market activity, auction result, Fed facility details) By Ross Kerber June 9 (Reuters) - U.S. Treasury yields moved lower on Wednesday for a second day as traders positioned for inflation data due on Thursday and showed strong demand at an auction, pushing the benchmark 10-year yield below 1.5% for the first time since May 7. The yield on the 10-year note was down 3.4 basis points at 1.4941% in afternoon trading, after reaching as low as 1.472% earlier in the session. The move also pulled down a closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year notes, seen as an indicator of economic expectations. It was at 134 basis points, about four basis points lower than Tuesday's close. Bidding for an auction of 10-year notes just after 1 p.m. ET was strong with a bid-to-cover ratio of 2.58 to 1, the highest in a year, according to an investor note from DRW Trading market strategist Lou Brien. Raymond James market strategist Ellis Phifer said investors seemed to be taking sanguine stances before the next release of consumer price index data by the U.S. Bureau of Labor Statistics due on Thursday. Strong CPI data a month ago helped push the yield on the 10-year to 1.707% in mid-May, but investors don't seem so concerned about inflation now. "Inflation is higher but it doesn’t seem to be accelerating at a pace that’s making the bond market nervous," Phifer said. A breakdown in talks in Washington on infrastructure spending between U.S. President Joe Biden and a Republican senator could also have contributed to the fall in yields, Phifer said, since no deal or a later deal would mean less future Treasury issuance. Booming demand as the U.S. economy reopens may continue to push up inflation, but many economists expect the price surges could be temporary. Helping drive the move lower in yields overnight was a big buyer of ultra-long Treasury futures around 4 a.m. ET, said Andrew Brenner, head of international fixed income at NatAlliance Securities. The 10-year yield dipped from 1.52% to around 1.50% on the purchase, said Brenner. The amount of money flowing into the U.S. Federal Reserve's reverse repurchase facility was nearly $503 billion, the third day in a row it hit a record high and putting pressure on short-term interest rates. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down less than a basis point at 0.1548% The 10-year TIPS yield was at -0.851% and the breakeven inflation rate was at 2.342% after touching its lowest since late April. June 9 Wednesday 1:15PM New York / 1715 GMT Price Current Net Yield % Change (bps) Three-month bills 0.025 0.0253 0.000 Six-month bills 0.04 0.0406 0.003 Two-year note 99-241/256 0.1548 0.002 Three-year note 99-208/256 0.3128 -0.013 Five-year note 100-2/256 0.7484 -0.018 Seven-year note 100-136/256 1.1704 -0.031 10-year note 101-52/256 1.4941 -0.034 20-year bond 102-112/256 2.0996 -0.031 30-year bond 104-104/256 2.1739 -0.035 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 6.50 -0.25 spread U.S. 3-year dollar swap 8.50 -2.25 spread U.S. 5-year dollar swap 6.75 -0.25 spread U.S. 10-year dollar swap -3.25 0.00 spread U.S. 30-year dollar swap -29.75 -0.50 spread (Reporting by Ross Kerber in Boston. Additional reporting by Kate Duguid in New York; Editing by Bernadette Baum, Emelia Sithole-Matarise and Jonathan Oatis)
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