(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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