* Focus on U.S. Treasury debt auctions
* Investors expect solid demand for Treasury notes
* ECB policy meeting also in focus
(Adds comment, updates prices) NEW YORK, Oct 23 (Reuters) - U.S. Treasury debt prices inched higher on Monday in thin volume, tracking gains in the European bond market, as investors added to positions after a sell-off over the last few days and ahead of this week's debt auctions and a European Central Bank monetary policy meeting. "I think there's a little bit of a set-up after the sell-off," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. "Treasuries sold off a bunch the past couple of days and it's normalizing ahead of demand and globally there has been a rally as well." Euro zone government bond yields also slipped. A big win for Japanese Prime Minister Shinzo Abe's ruling bloc in a national election ensured the continuation of ultra-easy monetary policy in Japan and sets the stage for this week's ECB policy meeting.
Investors expect the ECB to flag a gradual approach in removing monetary accommodation in the euro zone that has kept bond yields in the region low for some time. Market participants are also focused on this week's shorter-dated Treasury debt auctions. The Treasury is selling $26 billion in 2-year notes on Tuesday, $34 billion in 5-year notes and $15 billion in 2-year floating rate notes on Wednesday, and $28 billion in 7-year notes. Since the September auction cycle, yields have moved higher as interest rate hike expectations for December have increased. This reflects the recent stronger U.S. economic data as well as the Federal Reserve's increased hawkishness about the outlook for interest rates. Overall, investors expect solid demand for this week's auction given how Treasuries have sold off in the last few sessions. In a research note Societe Generale said it is "slightly positive" on the two-year Treasuries auction on Tuesday, although the note would have to sell off a little more to generate interest. "The current two-year note is trading cheaply on the curve, which is a positive for the auction, as is the fact that speculators hold a record short in the sector, which will likely benefit the auction from short-covering," the French bank said. In late trading, 10-year U.S. Treasury note prices were up 1/32, yielding 2.375 percent, down from Friday's 2.381 percent. U.S. 30-year bond prices rose 3/32, with a yield of 2.888 percent, down from 2.894 percent last Friday. U.S. two-year note yields, meanwhile, were at 1.568 percent , also down from 1.576 percent on Friday.
October 23 Monday 3:01PM New York / 1901 GMT Price
US T BONDS DEC7 152-11/32 0-5/32 10YR TNotes DEC7 124-232/256 0-20/256 Price Current Net Yield % Change
Three-month bills 1.08 1.0978 -0.005 Six-month bills 1.24 1.2649 0.000 Two-year note 99-162/256 1.5683 -0.008 Three-year note 99-200/256 1.7006 -0.016 Five-year note 99-98/256 2.0069 -0.013 Seven-year note 99-96/256 2.2227 -0.007 10-year note 98-232/256 2.3755 -0.006 30-year bond 97-60/256 2.8889 -0.005
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 23.50 -0.25
U.S. 3-year dollar swap 22.50 0.25
U.S. 5-year dollar swap 7.50 0.00
U.S. 10-year dollar swap -2.75 -0.25
U.S. 30-year dollar swap -30.00 0.50
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama and Susan Thomas)