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TREASURIES-U.S. yields rise as tax plan spurs borrowing concerns

* U.S. to sell $28 bln seven-year notes at 1 p.m.

* U.S. 10-year yield breaks above 200-day moving average

* U.S. 2-year yield subsides from near nine-year high

NEW YORK, Sept 28 (Reuters) - Most U.S. Treasury yields rose on Thursday, with the 10-year yield hitting an 11-week peak as investors reduced their bond holdings in the wake of a tax plan that raised concerns about growth in the federal deficit and borrowing. The sharp rise in bond yields came as the government prepared to sell $28 billion in seven-year notes at 1 p.m. (1700 GMT) in the final part of this week's $88 billon fixed-rate debt supply. "The tax cut plan has added to the idea of fiscal stimulus and an increase in Treasury issuance," said John Canavan, market strategist at Stone & McCarthy Research Associates in New York. On Wednesday, President Donald Trump proposed steep tax cuts for most Americans and businesses, but provided scant details on how to offset them without adding to the country's $20 trillion in national debt. At 10:55 a.m. (1455 GMT), the yield on 10-year Treasury notes was 2.337 percent, up 3 basis points from late on Wednesday. It reached 2.359 percent earlier on Thursday, the highest since July 13, and traded above its 200-day moving average for the first time since Aug. 1, Reuters data showed. On the other hand, the two-year yield retreated from near nine-year highs tied to bets the Federal Reserve would raise short-term interest rates in December. It was last at 1.471 percent, down 1.1 basis points after hitting 1.499 percent earlier on Thursday. On Tuesday, Fed Chair Janet Yellen said the U.S. central bank is on track to raise rates further even as inflation remains below its 2 percent goal. Federal funds futures implied traders saw a 78 percent chance the Fed would raise rates at its Dec. 12-13 policy meeting, little changed from Wednesday, according to CME Group's FedWatch program. In "when-issue" activity, traders expected the latest seven-year Treasury issue to sell at a yield of 2.168 percent, which would be the highest yield at a seven-year note sale since March, according to Tradeweb. September 28 Thursday 10:57AM New York / 1457 GMT Price

US T BONDS DEC7 152-9/32 -0-21/32 10YR TNotes DEC7 125-88/256 -0-24/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 1.045 1.0623 -0.003 Six-month bills 1.17 1.1933 -0.003 Two-year note 99-208/256 1.4707 -0.011 Three-year note 99-90/256 1.6 -0.005 Five-year note 99-200/256 1.9211 0.002 Seven-year note 98-56/256 2.1533 0.015 10-year note 99-68/256 2.3335 0.024 30-year bond 97-40/256 2.8927 0.031

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 25.50 0.75

spread

U.S. 3-year dollar swap 23.50 0.00

spread

U.S. 5-year dollar swap 7.50 -0.50

spread

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

spread

U.S. 30-year dollar swap -33.00 0.25

spread

(Reporting by Richard Leong; Editing by Dan Grebler)