TREASURIES-Government, corporate supply lift U.S. bond yields

* U.S. sells $12 bln 30-year bond supply to mediocre demand

* Companies raised $26 bln in corporate bond market

* U.S. August producer price data supports benign inflation view

(Updates market action, adds quote) NEW YORK, Sept 13 (Reuters) - U.S. Treasury yields rose on Wednesday with 10-year yield reaching a 2-1/2 week high as investors reduced their bond holdings to make room for this week's government and corporate debt supply. A recovery of stock prices on Wall Street the prior two sessions, before a slight pullback on Wednesday, also underpinned the rise in bond yields, analysts said. Investors unloaded equities and other risky assets last week on concern about the potential for massive damage from Hurricane Irma and tension between North Korea and the United States and its allies over Pyongyang's nuclear weapons program.

Safe-haven buying of Treasuries knocked the benchmark 10-year yield to a 10-month low, just above 2 percent on Friday, before turning higher this week on reduced tension between Washington and Pyongyang and early signs that destruction from Irma in the United States would not be as devastating as some had feared. "The bond market is comfortable in a 2.10-2.30 percent range. We need new stresses to push it out of that range," said Matt Toms, chief investment officer of fixed income at Voya Investment Management in Atlanta. The 10-year yield was at a 2-1/2 week peak of 2.195 percent, up more than 2 basis points on the day. The 30-year bond yield hovered near a three-week high at 2.792 percent, up nearly 2 basis points, following a $12 billion auction of long bond supply. This final leg of this week's $56 billion in coupon-bearing Treasuries supply met mediocre demand in the aftermath of poor bidding at the three-year and 10-year auctions earlier this week. "It's the bearish mentality at these (low) yield levels," said John Canavan, market strategist at Stone & McCarthy Research Associates in New York. As the government wrapped up its debt sales for the week, companies have raised about $26 billion through the sales of investment-grade and high-yield debt this week, according to IFR, a Thomson Reuters unit. On the data front, domestic producer prices grew 0.2 percent in August, less than the 0.3 percent increase forecast among analysts polled by Reuters. This latest reading reinforced the view that domestic inflation would remain below the Federal Reserve's 2 percent goal longer than previously thought. This benign inflation outlook should help hold down long-term bond yields, analysts said. "There is a lack of fear of inflation in the bond market. There's no credible case for inflation to increase," Toms said. September 13 Wednesday 3:19PM New York / 1919 GMT Price

US T BONDS DEC7 154-27/32 -0-13/32 10YR TNotes DEC7 126-112/256 -0-52/25


Price Current Net Yield % Change


Three-month bills 1.0275 1.0445 0.000 Six-month bills 1.1425 1.1651 0.002 Two-year note 99-204/256 1.3552 0.020 Three-year note 99-174/256 1.4846 0.019 Five-year note 99-76/256 1.7736 0.027 Seven-year note 99-32/256 2.0103 0.018 10-year note 100-124/256 2.1953 0.024 30-year bond 99-36/256 2.7925 0.017


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 23.75 0.50


U.S. 3-year dollar swap 20.25 1.00


U.S. 5-year dollar swap 7.00 0.25


U.S. 10-year dollar swap -4.25 1.00


U.S. 30-year dollar swap -34.25 1.25


(Reporting by Richard Leong; Editing by Steve Orlofsky)