TREASURIES-Prices fall, tracking Europe, Britain, ahead of 5-year auction

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct (Shenzhen: 000069.SZ - news) 26 (Reuters) - U.S. Treasury debt prices fell on Wednesday, in line with losses in Europe and Britain, in generally quiet trading ahead of a debt auction later in the session and key U.S. gross domestic product data due on Friday.

Benchmark U.S. 10-year yields, which move inversely to prices, climbed to more than one-week peaks. Ten-year yields have risen 17 basis points so far this month, on track for their best monthly performance since June of last year.

U.S. two-year yields, which are most sensitive to Federal Reserve rate hike expectations, advanced to two-week highs and have gained 10 basis points so far in October.

"There is no real catalyst except that Europe is under pressure here, with German bond yields and gilts higher," said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New (KOSDAQ: 160550.KQ - news) York.

German bund yields were higher at 0.085 percent, while that of 10-year British bonds rose to 1.156 percent . European bond prices have been weighed down by supply with auctions in Italy, Germany and Portugal.

The U.S. Treasury will hold its own auction on Wednesday, selling $34 billion in five-year notes. Nomura in a note said the recent rise in yields has pushed five-year outright yields to levels from before Britain's June vote to exit the European Union, which may attract some "buy-the-dip" buyers.

But the Japanese firm pointed out that the note's valuation remained rich, while positioning data showed asset managers were long in the sector. Both factors suggested that demand for this sector could be weaker than expected.

Investors are also looking to the first reading of U.S. GDP data for the third quarter on Friday, with economists expecting 2.5 percent growth, according to a Reuters poll.

The U.S. advance indicators report on Tuesday beat estimates, which could boost U.S. GDP for the third quarter. Both indicators showed strong exports and weak imports, as well as upside surprises for retail and wholesale inventories.

Action Economics, for instance, lifted its U.S. GDP growth estimate for Q3 to 3.3 percent from 2.5 percent, following the wholesale inventory and trade data.

In late morning trading, benchmark 10-year Treasury notes were down 9/32 in price to yield 1.791 percent, up from 1.758 percent late on Tuesday. Earlier in the session, 10-year yields hit a more-than-one-week peak of 1.793 percent.

U.S. 30-year bonds were 23/32 down in price to yield 2.536 percent, up from Tuesday's 2.502 percent.

U.S. two-year note yields were at 0.876 percent, up from Tuesday's 0.863 percent. Earlier in New York trading, two-year yields hit a two-week high of 0.86 percent.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Will Dunham)