* U.S. 10-year yield on track to break towards 2011 peaks
* U.S. seen selling 5-year notes at highest yield since 2008
* U.S. 2-year yield climbs above 2.5 pct, highest since
Sept. 2008
(Updates market action, adds quote, table)
By Richard Leong
NEW YORK, April 25 (Reuters) - The benchmark U.S. Treasury
10-year yield edged above 3 percent on Wednesday as jitters
about growing federal borrowing spurred more selling in the U.S.
government bonds, paving the path for it to visit levels not
seen since July 2011.
The expected surge in government debt issuance stemmed from
the revenue shortfall as a result of the massive tax overhaul
last December and increased spending linked to the budget
agreement inked in February.
The U.S. Treasury Department will sell $17 billion in 2-year
floating-rate notes at 11:30 a.m. (1530 GMT), following by a $35
billion auction of 5-year securities at 1 p.m. (1700 GMT).
Wednesday's Treasury sales followed mediocre demand for $32
billion of a new 2-year issue.
The Treasury will sell $29 billion in 7-year notes on
Thursday.
Increased government borrowing, together with inflation
concerns due to rising commodity prices and bets on further rate
increases from the Federal Reserve, have touched off the current
bond market sell-off, analysts said.
It is unclear where bond yields would peak as their rise has
unnerved Wall Street and holders of risky assets.
"This market is not ready to capitulate," said Jim Vogel,
interest rate strategist at FTN Financial in Memphis, Tennessee.
While the 10-year yield's break above 3 percent has grabbed
the most market attention, the 5-year maturity may be epicenter
of the current selloff, he said.
"It's the unrelenting pressure on the 5-years (Treasury) and
that's cascading across other parts of the curve," Vogel said.
At 9:55 a.m. (1345 GMT), 5-year Treasury yield
was up 2 basis points at 2.833 percent after rising to 2.854
percent earlier Wednesday, which was its highest since August
2009.
Traders expected the upcoming 5-year issue to
fetch a yield of 2.835 percent, which would be the highest yield
at a 5-year auction since September 2008.
The 10-year yield was over 2 basis points higher
than late Tuesday at 3.009 percent. If it were to climb above
3.04 percent, which was its peak in January 2014, it will likely
move into a territory last seen in the summer of 2011, analysts
said.
Two-year yield reached 2.508 percent, its highest
level since September 2008 before retreating to 2.492 percent,
up 1 basis point from late Tuesday.
April 25 Wednesday 10:05AM EDT/ 1405 GMT
Price
US T BONDS JUN8 142-1/32 -0-16/32
10YR TNotes JUN8 119-36/256 -0-48/256
Price Current Net
Yield % Change
(bps)
Three-month bills 1.82 1.8538 -0.013
Six-month bills 1.985 2.033 -0.008
Two-year note 99-198/256 2.4919 0.011
Three-year note 99-62/256 2.6418 0.020
Five-year note 98-122/256 2.8331 0.022
Seven-year note 97-228/256 2.9638 0.028
10-year note 97-200/256 3.0127 0.030
30-year bond 96-84/256 3.1917 0.023
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 26.25 -0.50
spread
U.S. 3-year dollar swap 21.50 0.25
spread
U.S. 5-year dollar swap 11.00 0.50
spread
U.S. 10-year dollar swap 2.50 0.25
spread
U.S. 30-year dollar swap -12.75 0.75
spread
(Additional reporting by Lewis Krauskopf; editing by Jonathan
Oatis)
