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TREASURIES-U.S. yields rise before Yellen speech, two-year auction

* U.S. to sell $26 bln two-year notes at 1 p.m. (1700 GMT)

* Fed's Yellen to speak at 12:45 p.m. (1645 GMT)

(Updates market action, adds quotes) NEW YORK, Sept 26 (Reuters) - U.S. Treasury yields rose on Tuesday ahead of a speech by Federal Reserve Chair Janet Yellen and a $26 billion sale of two-year notes, which kicks off this week's $88 billion short- and medium-dated government debt supply. Bond yields reversed part of Monday's decline due to safe-haven demand on concerns about tensions between North Korea and the United States and the surge in support for the far right in Sunday's German election. Traders are waiting to hear whether Yellen will reinforce the notion the central bank will consider raising rates at its Dec. 12-13 policy meeting even as inflation remains below its 2-percent goal, analysts said. "It seems unlikely that Chair Yellens tone and core views will have changed dramatically from Wednesdays FOMC press conference," NatWest strategists wrote in a research note. Last Wednesday, the Federal Open Market Committee, the Fed's policy-setting group, left the door open for another rate increase in December as it said it will begin to reduce its $4.5 trillion balance sheet in October. Yellen is scheduled to speak at 12:45 p.m. (1645 GMT) about "Inflation, Uncertainty, and Monetary Policy" at the National Association for Business Economics' annual conference in Cleveland. At 9:45 a.m. (1345 GMT), the yield on benchmark 10-year Treasury notes was up nearly 2 basis points at 2.236 percent, while the 30-year bond yield increased almost 2 basis points to 2.778 percent. Several other Fed officials are set to speak publicly, including Fed Governor Lael Brainard, Cleveland Fed President Loretta Mester and Atlanta Fed President Raphael Bostic.

Meanwhile, investors were preparing for the upcoming supply of two-year Treasuries at 1 p.m. (1700 GMT). In "when-issue" activity, traders expected the two-year note issue to sell at a yield of 1.454 percent, which would be highest yield since October 2008, Tradeweb data showed. September 26 Tuesday 9:50AM New York / 1350 GMT Price

US T BONDS DEC7 154-21/32 -0-8/32 10YR TNotes DEC7 125-244/256 -0-28/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 1.05 1.0674 0.043 Six-month bills 1.1725 1.1959 0.005 Two-year note 99-164/256 1.4398 0.013 Three-year note 99-110/256 1.5724 0.013 Five-year note 98-238/256 1.8533 0.017 Seven-year note 98-184/256 2.0745 0.015 10-year note 100-32/256 2.2357 0.016 30-year bond 99-124/256 2.7754 0.016

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 26.25 -0.25

spread

U.S. 3-year dollar swap 22.75 0.25

spread

U.S. 5-year dollar swap 8.00 -0.50

spread

U.S. 10-year dollar swap -4.00 -0.25

spread

U.S. 30-year dollar swap -32.25 -0.25

spread

(Reporting by Richard Leong; Editing by Susan Thomas)