TREASURIES-Retail sales gain add fuel to U.S. bond selloff

* U.S. 10-year yield seen next testing 3.21-3.23 percent

* Fed's Williams, Kaplan see gradual U.S. rate hikes on track

* Futures imply traders up bets on three more rate hikes in 2018

* Two-year yield highest since August 2008

(Updates market action, adds quote) NEW YORK, May 15 (Reuters) - A solid rise in U.S. retail sales in April rocked a teetering U.S. Treasuries market on Tuesday as a wave of selling propelled the benchmark 10-year note's yield through a key technical support, sending it to a near seven-year high. The 10-year yield had hovered around 3 percent since reaching late last month on concerns about rising inflation and a ballooning federal budget gap. On the other hand, trade tension between the United States and other nations and signs of faltering growth in Europe had kept a lid on U.S. yields. "(Today's) move was pretty violent, but the trading volume was not massive," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. "It looks like a decisive break." If 10-year yield rises further following the technical breach above 3.05 percent, it would next test the 3.21-3.23 percent area, which it last visited in July 2017, LeBas and other analysts said. The 10-year Treasury yield on Tuesday reached 3.095 percent, its highest level since July 2011. It was last at 3.076 percent, up 8 basis points, its biggest one-day yield rise since March 2017, Reuters data showed. Traders unloaded their bond holdings after the U.S. Commerce Department said retail sales rose 0.3 percent last month, matching analyst forecasts. The latest data supported the notion that consumer spending appeared on track to accelerate after slowing sharply in the first quarter. The two-year yield, which is most sensitive to traders' view on Federal Reserve policy, was up over 3 basis points at 2.581 percent after touching 2.589 percent, the highest since August 2008. A quicker pace of economic growth in the second quarter will likely allow the Fed to increase key overnight borrowing costs in the coming months, analysts and traders said. "It's a better start to the second quarter," said Thomas Roth, head of U.S. Treasury trading at MUFG Securities America in New York. "The Fed will likely go again in June." This view on the next Fed rate increase was reinforced by comments from San Francisco Fed President John Williams and Dallas Fed chief Robert Kaplan at separate public appearances. However, Williams and Kaplan downplayed the likelihood the central bank is considering a faster pace of rate hikes as productivity remains sluggish and inflation, while firming toward the Fed's 2 percent goal, is not overheating.

Interest rates futures implied traders now saw more than a 50 percent chance the Fed would raise rates three more times by year-end. May 15 Tuesday 3:27PM EDT/ 1927 GMT Price

US T BONDS JUN8 141-6/32 -1-18/32 10YR TNotes JUN8 118-168/256 -0-152/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 1.88 1.9153 0.016 Six-month bills 2.035 2.0847 0.000 Two-year note 99-156/256 2.5807 0.034 Three-year note 99-162/256 2.7535 0.053 Five-year note 99-52/256 2.9237 0.072 Seven-year note 98-244/256 3.043 0.083 10-year note 98-72/256 3.076 0.081 30-year bond 98-128/256 3.2032 0.075

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 21.50 0.75

spread

U.S. 3-year dollar swap 15.50 0.25

spread

U.S. 5-year dollar swap 8.00 0.00

spread

U.S. 10-year dollar swap 3.00 0.50

spread

U.S. 30-year dollar swap -8.25 1.00

spread

(Reporting by Kate Duguid and Richard Leong; Editing by Dan Grebler and Bernadette Baum)