TREASURIES-Yields ease back as 7-year note auction shows solid demand

 (updates with market activity, auction result, analyst comment,
    By Karen Pierog and Ross Kerber
    Sept 28 (Reuters) - U.S. Treasuries extended their sell-off
into a fourth day on Tuesday with the 10-year yield reaching a
level last seen in mid-June, while inflation expectations rose.
    The benchmark 10-year yield climbed as high as
1.567% and was last up 4.3 basis points at 1.527%. Yields on
two- and five-year notes reached their
highest levels since the first quarter of 2020. 
    Prices, which move inversely to yields, continued to be
pulled down after the U.S. Federal Reserve last week revealed
its latest clues on tapering its asset purchases and hiking
interest rates, according to Kim Rupert, managing director of
global fixed income analysis at Action Economics.
    She added that uncertainty in Washington over this week's
government funding deadline, the debt ceiling limit and the
potential for more massive federal spending also weighed on the
    "It's just so uncertain that it's leaving bulls kind of
sidelined so no one wants to get in the mix with all of that
going on," Rupert said. 
    However the low prices eventually brought in traders and
yields gave back some of their increases in afternoon trading.
    The U.S. sold $62 billion of 7-year notes at a
high yield of 1.332%, a result that ISI Evercore macro research
analyst Stan Shipley called "better than expected" given the
uncertainty created by the standoff over budget talks in
    Growing inflationary pressures are starting to make
investors nervous, with oil at three-year highs and Fed Chair
Jerome Powell flagging that price pressures as a result of
reopening bottlenecks might be more enduring than first
    The yield on 10-year U.S. Treasury Inflation-Protected
Securities rose to its highest since late June and
was last at -0.861%. 

    A closely watched part of the yield curve that measures the
gap between yields on two- and 10-year Treasury notes
 was last a basis point steeper at 122 basis points.
    September 28 Tuesday 2:11PM New York / 1811 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.0375       0.038     0.000
 Six-month bills               0.055        0.0558    0.005
 Two-year note                 99-228/256   0.3049    -0.004
 Three-year note               99-122/256   0.5534    0.000
 Five-year note                99-78/256    1.018     0.020
 Seven-year note               98-176/256   1.3241    0.031
 10-year note                  97-120/256   1.527     0.043
 20-year bond                  95-184/256   2.0123    0.067
 30-year bond                  98-164/256   2.0611    0.066
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         8.50        -2.75    
 U.S. 3-year dollar swap        12.50         0.00    
 U.S. 5-year dollar swap         8.00        -1.50    
 U.S. 10-year dollar swap        2.75         0.25    
 U.S. 30-year dollar swap      -24.50        -0.25    
 spread (Reporting by Karen Pierog in Chicago, Ross Kerber in Boston,
and Tom Westbrook in Singapore, additional reporting by Sujata
Rao and Dhara Ranasinghe in London Editing by Sherry
Jacob-Phillips, Susan Fenton, Dan Grebler and Cynthia Osterman)