* Treasury's auction of U.S. five-year notes saw average demand
* Fed minutes show FOMC expectation of upside growth trajectory
* U.S. 10-year hits four-year high
* U.s. 30-year yields touch highest since July 2015
(Adds details on yield, corporate bond supply; updates prices in text, table) NEW YORK, Feb 21 (Reuters) - U.S. Treasury yields surged on Wednesday in choppy trading, after minutes of the latest Federal Reserve meeting affirmed expectations of further rate increases this year, with economic growth seen accelerating. U.S. benchmark 10-year note yields, which move inversely to prices, touched a more than four-year high, after the Fed minutes, while 30-year yields, hit their highest level since July 2015 after the Fed minutes. Earlier in the session, yields on U.S. two-year notes, the maturity most sensitive to rate expectations, hit the highest in more than nine years. The Fed minutes showed that recent information received by voting members on inflation "along with prospects for a continued solid pace of economic activity provided support for the view that inflation ... would likely move up in 2018."
"It lined up with market expectations for a continued gradual pace in interest rate hikes," said Michael Skordeles, U.S. macro strategist at Suntrust Advisory Services in Atlanta. In late trading, U.S. 10-year Treasury yields were at 2.957 percent, their highest since January 2014. They were last at 2.946 percent, up from Tuesday's close at 2.893 percent. The U.S. 30-year bond yield touched 3.233 percent , the highest since July 2015. It was last at 3.227 percent from Tuesday's 3.155 percent. The underperformance of long-dated Treasuries could also be due to a slew of upcoming corporate bond supply, most of them long-dated as well, said Action Economics in its blog on Wednesday. The research firm cited Boeing Inc, which has a $1.4 billion four-tranche offering in 5-, 10-, 20-, and 30-year maturities, as well as Western Gas, which has a $1.1 billion 10- and 30-year deal. Investors tend to sell Treasuries to make room for corporate bonds in fixed-income portfolios. The yield on the two-year Treasury note was at 2.274 percent after hitting a peak of 2.282 percent, the most in more than nine years. The Treasury market showed little reaction to an average $35 billion U.S. 5-year note auction, part of the week's $258 billion issuance intended to help fund President Donald Trump's tax overhaul and a two-year budget deal. Demand from investors was fair, analysts said. The Treasury notes sold at a yield of 2.658 percent versus 2.660 percent at the bid's close, with a 2.44 bid-to-cover ratio, slightly below last month's 2.48.
Wednesday, Feb. 21 at 1536 EST (2036 GMT): Price
US T BONDS MAR8 142-20/32 -1-8/32 10YR TNotes MAR8 120-36/256 -0-88/256 Price Current Net Yield Change (pct) (bps) Three-month bills 1.6225 1.6518 -0.002 Six-month bills 1.8125 1.8547 0.000 Two-year note 99-244/256 2.2741 0.013 Three-year note 99-118/256 2.4385 0.024 Five-year note 98-148/256 2.6841 0.036 Seven-year note 97-184/256 2.8647 0.046 10-year note 98-80/256 2.9463 0.053 30-year bond 95-172/256 3.2263 0.071
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 26.75 0.00
U.S. 3-year dollar swap 24.50 2.50
U.S. 5-year dollar swap 12.75 3.00
U.S. 10-year dollar swap 2.50 1.50
U.S. 30-year dollar swap -16.75 0.00
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Kate Duguid and April Joyner; Editing by Meredith Mazzilli and David Gregorio)