TREASURIES-Treasury prices rebound after BoE decision

(Adds comment, U.S. market open) By Herbert Lash NEW YORK, Sept 28 (Reuters) - U.S. Treasury prices rebounded sharply on Wednesday after the Bank of England said it would buy long-dated British bonds in a moved aimed at restoring financial stability in markets rocked globally by the fiscal policy of the new government in London. The BoE sought to quell a firestorm in financial markets sparked by plans announced last week by the new British government to slash taxes and ramp up borrowing. The new economic agenda sent the pound to an all-time low against the dollar, just above $1.03, and deepened a sell-off that created a bear market in bonds for the first time in decades. Earlier in Asia, the yield on benchmark 10-year Treasuries briefly topped 4% to hit a 12-year high of 4.004%. The yield later fell 16.2 basis points to 3.801% and bond prices rose after the BoE decision. Yields move in the opposite direction of bond prices. The BoE's move put a circuit breaker on the upward spiral in yields and stemmed the dollar's advance, the leading cause of fear and instability in markets, said Jimmy Chang, chief investment officer at Rockefeller Global Family Office. The decision also revived "a little bit of the hope that maybe the Fed won't be as aggressive as it has sounded," Chang said. "Very quickly the market seems to be dialing down the hawkish expectations. "They needed to come in and stabilize the market for now," Chang said of the BoE. "But then they also say that they're going to be buying gilts into mid-October. So what happens after that?" The implication is the British central bank will need to raise interest rates aggressively, Chang said. "They've really been boxed in. They're dealing with stagflation and a market just pushing back against what (new Prime Minister Liz) Truss has proposed with very aggressive tax cuts," he said. The two-year Treasury yield, which typically moves in step with interest rate expectations, fell 15.7 basis points to 4.151%. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as a harbinger of a looming recession, initially flattened before trading little changed at -35.0 basis points. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.358%. The 10-year TIPS breakeven rate was last at 2.304%, indicating the market sees inflation averaging about 2.3% a year for the next decade. In late August the breakeven rate was at 2.64%. The 10-year TIPS yield earlier hit a 12-1/2-year high at 1.692%. The U.S. dollar 5 years forward inflation-linked swap, seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.385%. The Treasury will sell $36 billion in seven-year notes with results of the auction announced shortly after 1 p.m. ET (1700 GMT). Sept. 28 Wednesday 10:50 AM New York / 1450 GMT Price Current Net Yield % Change (bps) Three-month bills 3.2775 3.3508 0.023 Six-month bills 3.795 3.923 -0.026 Two-year note 100-48/256 4.1513 -0.157 Three-year note 98-22/256 4.1936 -0.206 Five-year note 100-122/256 4.0188 -0.195 Seven-year note 94-252/256 3.9604 -0.181 10-year note 91-104/256 3.8014 -0.162 20-year bond 90-248/256 4.04 -0.09 30-year bond 87-28/256 3.718 -0.110 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap spread 30.75 2.75 U.S. 3-year dollar swap spread 7.00 5.00 U.S. 5-year dollar swap spread 2.50 2.25 U.S. 10-year dollar swap spread 2.00 3.50 U.S. 30-year dollar swap spread -43.25 1.75 (Reporting by Herbert Lash, additional reporting by Tom Westbrook in Sydney; Editing by Ana Nicolaci da Costa and Jonathan Oatis)