TREASURIES-Yields set 22-month highs as sell-off continues
* Yields set 22-month highs on Fed uncertainty
* Fed buys $1.46 billion in bonds due 2036-2043
* Treasury to sell $99 billion new coupon-bearing debt next week
NEW YORK, June 21 (Reuters) - U.S. Treasuries prices fell on Friday, with five-, seven- and 10-year note yields setting 22-month highs, on jitters over when the Federal Reserve is likely to begin to pare back its bond-buying program. U.S. government bonds have been hurt alongside most assets since Fed Chairman Ben Bernanke said on Wednesday that the economy is on track for further improvement and that the U.S. central bank is likely to reduce purchases as a result. The Fed has been expanding its balance sheet with trillions of dollars of bond purchases since 2009 to drive down interest rates, encourage borrowing and help stimulate the economy and the labor market. Investors are now grappling with what effect it will have on markets when the Fed pulls back that stimulus. "It's all one big unwind. That's been a negative for Treasuries as hedges are unwound," said Sean Murphy, a Treasuries trader at Societe Generale in New York. Five-year and seven-year notes, which are the most sensitive to Fed rate policy, were again the worst performers on Friday Five-year notes were last down 14/32 in price to yield 1.40 percent, and seven-year notes fell 19/32 in price to yield 1.94 percent, both the highest yields since August 2011. Those notes may also come under further pressure ahead of new Treasury supply next week. The Treasury will sell $99 billion in new coupon-bearing notes, including $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday. Investors are struggling to determine how much further the sell-off may have to run. Benchmark 10-year notes yields rose to 2.51 percent on Friday, also the highest since August 2011, and are up from 2.21 percent before the Fed announcement and around 1.60 percent at the beginning of May. Some traders said that a margin hike by the CME Group on Thursday in eurodollar futures, which came into effect on Friday, may also be adding to volatility. Thin volume before a summer weekend was also cited as potentially exacerbating market moves. Some see bonds as likely to regain a bit more stability before the July 5 release of the U.S. payrolls report for June, which will be scrutinized for further signs of economic strength and how close the Fed likely is to reducing its $85 billion monthly purchases of Treasuries and mortgage-backed securities. "I think the move in Treasuries is probably a little overdone. I wouldn't be surprised to see the market come down and even yields decline slightly" before the report, said Gary Pollack, head of fixed income trading at Deutsche Bank Private Wealth Management in New York. Almost all economists at primary dealers expect that the Fed will start pulling back on buying bonds by the end of this year, with many expecting it will begin in September. The Fed bought $1.46 billion in bonds due 2036 and 2043 on Friday as part of its ongoing purchase program. Thirty-year bonds were last down 21/32 in price to yield 3.56 percent, the highest since September 2011. Bond volatility measures on Thursday increased to new 13-month highs as bonds were hurt by large waves of selling. Some analysts and investors have expressed concern that the longer the Fed continues its purchases the greater the risk of market disruptions when it pulls out, potentially adding to the already volatile market moves. The Merrill Lynch MOVE index, which estimates future volatility of long-term bond yields, increased to 96 on Thursday, up from 86.9 on Wednesday. It is up from a multi-year low of around 50 at the beginning of May.