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TREASURIES-Yields rise after debt auctions; Fed meeting awaited

* Strong 3-year auction offset by tepid 10-year auction

* 3-,2-year yields hit multi-week highs before auctions

* Fed expected to hike rates Wednesday, future signaling uncertain

(Updates prices, adds comment) NEW YORK, June 12 (Reuters) - U.S. Treasury yields rose on Monday after tepid demand at a 10-year Treasury auction offset strong demand at a three-year auction, while uncertainty about the Federal Reserve's policy outlook on Wednesday limited the move higher in yields. Treasury yields fell after the U.S. Treasury Department sold $24 billion in three-year government debt to the strongest bidding in about 1-1/2 years, according to Treasury data. Three-year yields hit a session low of 1.478 percent, while 10-year yields hit a session low of 2.187 percent after the auction. U.S. two-year yields had touched 1.359 percent, their highest in a month, while three-year yields touched their highest since May 24 at 1.500 percent, ahead of the auction. Yields resumed their rise, however, after the Treasury sold $20 billion of 10-year government notes to average demand at a yield of 2.195 percent. That yield was higher than expected and indicated more tepid appetite than that for the three-year supply. "There may be a little reluctance to buy the 10-year at these prices," said David Coard, head of fixed income sales and trading at Williams Capital Group in New York, in reference to the lukewarm demand. The Treasury will sell $12 billion in 30-year bonds on Tuesday. Caution restrained the move higher in yields as traders awaited the Fed's two-day meeting beginning on Tuesday. While an interest rate increase from the Fed is widely expected, the central bank's forecasts for future rate hikes and hints of potential balance sheet reduction are uncertain and will be closely watched. "Wednesdays meeting is pretty much a high-risk event," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York. Analysts said the Fed could take the hawkish stance of hinting it could taper its balance sheet later this year while also hiking rates again in December. Conversely, a more dovish stance is also seen as possible, in part due to recent signs of softening inflation. Benchmark 10-year Treasuries were last down 3/32 in price to yield 2.211 percent, from a yield of 2.199 percent late on Friday. U.S. 30-year yields were last at 2.866 percent, compared to 2.853 percent late on Friday, ahead of Tuesday's auction. U.S. three-year Treasuries were last down 1/32 in price to yield 1.489 percent, compared to 1.478 percent late on Friday.

June 12 Monday 3:45PM New York / 1945 GMT Price

US T BONDS SEP7 154-2/32 -0-5/32 10YR TNotes SEP7 126-88/256 -0-20/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 0.9825 0.9985 -0.008 Six-month bills 1.095 1.1162 -0.008 Two-year note 99-204/256 1.355 0.020 Three-year note 100-10/256 1.4861 0.008 Five-year note 99-224/256 1.7764 0.013 Seven-year note 99-224/256 2.0193 0.012 10-year note 101-120/256 2.2092 0.010 30-year bond 102-180/256 2.8648 0.012

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 19.25 -1.50

spread

U.S. 3-year dollar swap 18.00 -0.75

spread

U.S. 5-year dollar swap 7.25 -0.75

spread

U.S. 10-year dollar swap -5.25 -0.50

spread

U.S. 30-year dollar swap -43.50 -0.50

spread

(Reporting by Sam Forgione; Editing by Meredith Mazzilli)