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TREASURIES-Longer-term yields up as traders look for Fed inflation guidance

 (New throughout, updates prices, yields, market activity and
comments, adds 5-year note auction results)
    By Ross Kerber
    Aug 26 (Reuters) - Yields on longer-term U.S. Treasuries
were higher Wednesday as traders anticipated that Federal
Reserve comments would raise inflation expectations
    The benchmark 10-year yield was up about a basis
point at 0.69% in afternoon trading, though off of a high of
0.721% reached in the morning before results of an auction of
5-year notes showed continued strong demand.
    Investors were betting that when he speaks on Thursday, Fed
Chair Jerome Powell will create expectations of more inflation,
said Jim Vogel, interest rate strategist for FHN Financial.
    "People believe they will hear a broader view of how they
(the Fed) will manage inflation targets, that suggests to many
people that the curve will steepen and inflation expectations
will continue to rise," Vogel said.
   Powell and other Fed officials will speak at a virtual
meeting traditionally held at the mountain resort of Jackson
Hole, Wyoming. They are set to discuss the central bank's
framework review to explore how monetary policy should adapt to
changes in the economy.
    Persistently low inflation and low interest rates have
numbed the effects of the Fed's recession-fighting stimulus
measures. Rising uncertainty about the economic outlook in the
face of the coronavirus pandemic may add to pressure on the Fed
to bolster its policy arsenal.
    Wall Street advanced on Wednesday as upbeat earnings kept
investors focused on momentum stocks that have outperformed
since the onset of the coronavirus pandemic.
    The U.S. Treasury sold $51 billion worth of 5-year notes at
a high yield of 0.298%, with primary dealers accounting for
17.8% of accepted bids.
    That was the lowest percentage since August of 2017 despite
a spike in issuance, said Cantor Fitzgerald analyst Justin
Lederer.
    "There's still strong demand for Treasuries even in the
midst of significantly increased auctions," he said.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on 2- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 53 basis points, roughly unchanged from
Tuesday's close and well above its recent low of 33 basis points
on July 24.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was unchanged at
0.1544%.
    
    August 26 Wednesday 2:30PM New York / 1830 GMT Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0975       0.0989    -0.002
 Six-month bills               0.11         0.1119    -0.005
 Two-year note                 99-241/256   0.1544    0.000
 Three-year note               99-214/256   0.1805    0.000
 Five-year note                99-206/256   0.29      -0.002
 Seven-year note               99-60/256    0.4875    0.005
 10-year note                  99-96/256    0.69      0.008
 20-year bond                  98-184/256   1.1974    0.023
 30-year bond                  99-36/256    1.4103    0.023
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.75         0.50    
 spread                                               
 U.S. 3-year dollar swap         6.50         0.25    
 spread                                               
 U.S. 5-year dollar swap         5.25         0.50    
 spread                                               
 U.S. 10-year dollar swap       -0.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -36.00         1.00    
 spread (Reporting by Ross Kerber in Boston; Editing by Will Dunham and
David Gregorio)
  
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