TREASURIES-U.S. 10-year yield retreats from 7-year peak

* Traders see 3.25 pct as next test for 10-year yield

* U.S. to sell $99 bln coupon issues, $16 bln floating-rate notes

NEW YORK, May 18 (Reuters) - U.S. 10-year Treasury yields declined on Friday from a near seven-year high as buyers emerged following a bond market sell-off earlier this week spurred by worries about growing inflation and government borrowing. Technical indicators suggested the Treasuries market is the most oversold since three weeks ago, when the 10-year yield rose above 3 percent for the first time since January 2014. Still many traders expect Treasury prices would resume their fall, pushing 10-year yields toward 3.25 percent, which was last seen in May 2011. "It's a grind higher in yields," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York. "I think the data are still pretty good. They make people think the economy is doing well." To be sure, if Wall Street unravels as investors view Treasuries as a compelling alternative to stocks, or a resurgent dollar hurts oil and other commodity prices, that could rekindle a bid for U.S. government bonds, analysts said. At 9:48 a.m. ET (1348 GMT), the yield on benchmark 10-year Treasury notes was down 2 basis points at 3.091 percent after touching 3.128 percent in overseas trading, which was the highest level since July 2011, Reuters data showed. On the week, the 10-year yield was on track to increase 12 basis points, its biggest weekly gain in a month. The two-year Treasury yield was about 2 basis points lower at 2.557 percent, pulling back from a nearly decade peak of 2.598 percent reached on Thursday. The two-year yield was on course to rise for six straight weeks, which would be the longest such streak since 10 consecutive weeks of increase in the fourth quarter of 2017. The yield on 30-year bonds touched 3.264 percent earlier Friday, which was the highest since October 2014. It was on track for its largest weekly rise since early February. Demand for Treasuries will be tested next week as the Treasury Department is scheduled to sell $99 billion in fixed-rate coupon issues and $16 billion in two-year floating-rate notes (FRN). May 18 Friday 9:50AM EDT/ 1350 GMT Price

US T BONDS JUN8 140-22/32 0-8/32 10YR TNotes JUN8 118-176/256 0-44/256 Price Current Net Yield % Change

(bps)

Three-month bills 1.87 1.9046 -0.002 Six-month bills 2.0375 2.0868 0.000 Two-year note 99-168/256 2.5571 -0.016 Three-year note 99-182/256 2.7264 -0.022 Five-year note 99-70/256 2.9087 -0.023 Seven-year note 98-248/256 3.0407 -0.022 10-year note 98-44/256 3.0892 -0.020 30-year bond 97-236/256 3.2338 -0.012

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 23.50 -1.00

spread

U.S. 3-year dollar swap 17.25 -1.00

spread

U.S. 5-year dollar swap 9.00 -0.75

spread

U.S. 10-year dollar swap 2.00 -1.00

spread

U.S. 30-year dollar swap -9.75 -1.00

spread

(Reporting by Richard Leong Editing by Nick Zieminski)