(Refiles to add dropped words, fix tense in headline) * U.S. 5-year auction shows strong results * U.S. 10-year breakeven inflation falls * NY Fed's reverse repo volume hits $450 bln, 3rd largest ever * Focus on Thursday's U.S. 7-year note auction By Gertrude Chavez-Dreyfuss NEW YORK, May 26 (Reuters) - U.S. Treasury yields edged higher on Wednesday in choppy trading, with those on the long end rising from three-week lows, amid a recovery in risk appetite with gains in stocks as well as profit-taking from recent spikes in bond prices. The fall in Treasury prices came despite a strong U.S. 5-year note auction, which came on the heels of an equally robust 2-year note sale on Tuesday. "It appears the market got a little too rich, especially ahead of key inflation data due out Friday," Action Economics said in its blog right after the auction. The market is expecting the core PCE index, the Fed's preferred inflation gauge, to rise 0.6% in April from a 0.4% increase in March. Bond investors in recent sessions seemed to be less concerned about inflation, analysts said, as they bought the long end of the curve that pushed their yields lower. The Federal Reserve reiterated its view, through officials that spoke this week, that current inflation pressures are temporary. Wednesday's strong auction of 5-year notes failed however to entice the market to continue pushing bond prices higher. This offering was awarded at 0.788%, lower than the expected 0.794% yield at the bid deadline. Bids at $151.8 billion were a record high, Action Economics said, for a 2.49 bid-to-cover ratio, better than both the 2.31 last month and the 2.40 average. Treasuries did not initially react after the auction, but their yields subsequently rose and some said this could be in preparation for Thursday's sale of $62 billion in 7-year debt. "Without any compelling stories, there's not a lot of room to maneuver," said Jim Vogel, senior rates strategist at FHN Financial in Memphis, Tennessee. "So if dealers have to sell their positions because they have to take on 7s tomorrow, then you're going to pressure the market a little bit." In afternoon trading, the U.S. 10-year Treasury yield rose to 1.577% from 1.564% late on Tuesday. U.S. 30-year yields, meanwhile, were up at 2.262% from Tuesday's 2.26%. Post-auction, the U.S. 5-year yield climbed to 0.782% , from 0.774% on Tuesday. In a sign that bond investors are less nervous about inflation, the U.S. 10-year inflation breakeven, the bond market's gauge of investors' price outlook over the next 10 years, fell to 2.430% on Wednesday from Tuesday's 2.449%. In mid-May, 10-year breakeven inflation hit 2.564%, the highest since March 2013. In the overnight repo market, the rate was steady at 0.02% , after falling to -0.01% earlier this week amid a glut of cash in the financial system. The Federal Reserve's reverse repurchase facility showed volume of $450.2 billion on Wednesday, representing overnight loans by financial institutions to the Fed at a 0% interest. Wednesday's reverse repo operations were the third largest since the facility was launched in 2013. May 26 Wednesday 2:56PM New York / 1856 GMT Price Current Net Yield % Change (bps) Three-month bills 0.01 0.0101 -0.005 Six-month bills 0.03 0.0304 -0.005 Two-year note 99-245/256 0.1466 -0.005 Three-year note 99-216/256 0.3029 -0.003 Five-year note 99-216/256 0.7824 0.008 Seven-year note 100-28/256 1.2334 0.011 10-year note 100-116/256 1.5757 0.012 20-year bond 101-76/256 2.1695 0.005 30-year bond 102-124/256 2.2604 0.000 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 -0.75 spread U.S. 3-year dollar swap 10.75 -0.25 spread U.S. 5-year dollar swap 7.75 -0.25 spread U.S. 10-year dollar swap -4.25 -0.25 spread U.S. 30-year dollar swap -29.75 0.25 spread (Reporting by Gertrude Chavez-Dreyfuss Editing by Mark Heinrich)
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