TREASURIES-U.S. prices slide ahead of debt auctions this week

(Adds new analyst comment, updates prices) NEW YORK, Feb 4 (Reuters) - U.S. Treasury prices fell on Monday in generally thin volume, after trading higher for most of last week, pressured by upcoming debt supply, as well as indications that inflation expectations are rising. U.S. data showing factory orders for November fell way below forecasts pushed yields a little lower, but not enough to retrace their earlier rise. The market this week is bracing for $84 billion in refunding auctions for February that could cheapen rates, analysts said. The U.S. Treasury will auction $38 billion in 3-year notes on Tuesday, $27 billion in 10-year notes on Wednesday, and $19 billion in 30-year bonds on Thursday. "The modest cheapening of U.S. Treasuries reflected a simple supply concession into this week's refunding auctions," said Jon Hill, interest rates strategist, at BMO Capital Markets in New York. In a concession, investors typically sell Treasuries ahead of an auction to push the yield higher so they can buy them at a lower price. Nomura Securities in a research note said there has been a clear upward trend in investment funds activity at the long-end auctions as the search for yield continues. Stan Shipley, fixed income strategist at Evercore ISI in New York, said aside from the auctions, Monday's rise in yields was also consistent with climbing inflation expectations that he believed was mostly due to higher oil prices. One indicator of inflation expectations is the U.S. dollar five-year forward inflation linked swap, currently at 2.26 percent, the highest in 1-1/2 months. At the beginning of the year, the U.S. 5-year swap rate was at a more than two-year low. In afternoon trading, U.S. 10-year note yields rose to 2.718 percent, up from 2.691 percent late on Friday. U.S. 30-year bond yields, were also up at 3.05 percent , from 3.032 percent on Friday. On the short end of the curve, U.S. 2-year yields climbed as well to 2.528 percent, compared with Friday's 2.51 percent . Overall, Evercore's Shipley thinks the market may have already priced in the Federal Reserve's dovish stance at last week's Federal Reserve's monetary policy meeting. "You're going to have to look at U.S. economic data very closely," Shipley said. "For the last two years, you didn't really have to look (closely) because the Fed was going to tighten anyway and was keen on normalizing rates." Yields did tick lower after a 0.6 percent drop in U.S. factory orders in November. BMO's Hill said the data, while lagging several months, further confirms that the slowing U.S. economy in the last quarter was more pronounced than initially thought.

February 4 Monday 3:08PM New York / 2008 GMT Price

Price Current Net Yield % Change

(bps)

Three-month bills 2.34 2.3858 -0.010 Six-month bills 2.415 2.478 0.013 Two-year note 99-240/256 2.5324 0.022 Three-year note 99-238/256 2.5247 0.028 Five-year note 99-214/256 2.5352 0.027 Seven-year note 100-8/256 2.62 0.032 10-year note 103-108/256 2.7235 0.033 30-year bond 106-52/256 3.056 0.024

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 14.00 -0.25

spread

U.S. 3-year dollar swap 10.25 -0.25

spread

U.S. 5-year dollar swap 8.50 0.00

spread

U.S. 10-year dollar swap 2.25 -0.25

spread

U.S. 30-year dollar swap -19.25 0.00

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by David Gregorio and Susan Thomas)