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TREASURIES-U.S. prices fall ahead of debt supply this week

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 4 (Reuters) - U.S. Treasury prices fell on

Monday in generally light volume, after trading higher for most

of last week, pressured by upcoming debt supply, as well as

indications that inflation expectations are rising.

U.S. data showing factory orders for November fell 0.6

percent, way below expectations, did push yields a little lower,

but not enough to retrace their earlier rise.

The market this week is bracing for $84 billion in refunding

auctions for February that could cheapen rates going forward,

analysts said. The U.S. Treasury will auction $38 billion in

3-year notes on Tuesday, $27 billion in 10-year notes on

Wednesday, and $19 billion in 30-year bonds on Thursday.

"These auctions are weighing on Treasuries right now," said

Stan Shipley, fixed income strategist, at Evercore ISI in New (KOSDAQ: 160550.KQ - news)

York. "There's not going to be demand at 2.65 percent for the

10-year."

Investors typically sell Treasuries ahead of an auction to

push the yield higher so they can buy them at a lower price.

Nomura Securities in a research note said there has been a

clear upward trend in investment funds activity at the long-end

auctions as the search for yield continues.

Shipley also said there are indications that Monday's rise

in yields was consistent with climbing inflation expectations

that he believed was mostly due to higher oil prices.

One indicator of inflation expectations is the U.S. dollar

five-year forward inflation linked swap, currently at 2.26

percent, the highest in 1-1/2 months. At the beginning of the

year, the U.S. 5-year swap rate was at a more than two-year low.

In mid-morning trading, U.S. 10-year note yields rose to

2.73 percent, up from 2.691 percent late on Friday.

U.S. 30-year bond yields, were also up at 3.071 percent

, from 3.032 percent on Friday.

On the short end of the curve, U.S. 2-year yields climbed as

well to 2.53 percent, compared with Friday's 2.51 percent

.

Yields did tick lower after a 0.6 percent drop in U.S.

factory orders in November.

"This data - while several months behind us - further

confirms that the slowing the U.S. economy in Q4 was more

pronounced than appreciated in current pricing, or forecasts,"

said Jon Hill, interest rates strategist, at BMO Capital Markets

in New York.

February 4 Monday 11:00AM New York / 1600 GMT

Price

Price Current Net

Yield % Change

(bps)

Three-month bills 2.35 2.3961 0.000

Six-month bills 2.4 2.4624 -0.003

Two-year note 99-243/256 2.5263 0.016

Three-year note 99-240/256 2.5219 0.025

Five-year note 99-208/256 2.5402 0.032

Seven-year note 100 2.625 0.037

10-year note 103-92/256 2.7307 0.040

30-year bond 105-232/256 3.0707 0.039

DOLLAR SWAP SPREADS

Last (bps) Net (LSE: 0LN0.L - news)

Change

(bps)

U.S. 2-year dollar swap 14.75 0.50

spread

U.S. 3-year dollar swap 11.00 0.50

spread

U.S. 5-year dollar swap 8.50 0.00

spread

U.S. 10-year dollar swap 2.50 0.00

spread

U.S. 30-year dollar swap -19.50 -0.25

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by David

Gregorio)