TREASURIES-U.S. yields flat as higher rates fuel growth concerns

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(Adds auction results, fresh prices) By Herbert Lash NEW YORK, June 28 (Reuters) - U.S. Treasury yields were mostly flat on Tuesday after a report showed consumer confidence slumped in June on concerns that high inflation will likely weaken economic growth later this year. The Conference Board's consumer confidence index fell 4.5 points, but its expectations index, based on consumers' short-term outlook for income, business and labor market conditions, tumbled to 66.4 - the lowest since March 2013. The report brought to the fore concerns about what rising inflation means for growth, an outlook many investors anticipate as the Federal Reserve aggressively hikes interest rates to halt a steady rise in consumer prices. "Most investors are accepting the fact that the economy is going to have a hard landing," said David Petrosinelli, senior trader at InspereX. "It's a continued lack of confidence in the Fed being able to engineer it. People have accepted the fact the Fed has to break demand before we can break prices." The yield on 10-year Treasury notes fell 0.2 basis points to 3.192%. A closely watched part of the Treasury yield curve measuring the gap between yields on two- and 10-year notes, a sign of economic expectations, was at 6.6 basis points. The gap earlier briefly spiked down to -7.24 when New York trade opened. The flattening at the short end of the yield curve can signal a sharp slowdown or recession. Yields on three-, five- and seven-year notes were higher than the benchmark 10-year, trading at 3.220%, 3.255% and 3.271%, respectfully. The yield on two-year notes, which can herald interest rate expectations, advanced 1.3 basis points at 3.124%, while the yield on the 30-year Treasury bond fell 1.1 basis points to 3.294%. The Treasury sold $40 billion of seven-year notes at a high yield of 3.28%, or more than 2 basis points higher than the market when bidding closed, said Lou Brien, market strategist at DRW Trading. The auction was poor, the same as Monday, he said. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.763%. The 10-year TIPS breakeven rate was last at 2.487%, indicating the market sees inflation averaging about 2.6% a year for the next decade. The U.S. dollar five-year forward inflation-linked swap was last at 2.497%. June 28 Tuesday 2:06 PM New York / 1806 GMT Price Current Net Yield % Change (bps) Three-month bills 1.7475 1.7797 -0.013 Six-month bills 2.4775 2.5439 -0.023 Two-year note 99-196/256 3.1218 0.011 Three-year note 99-8/256 3.2203 0.006 Five-year note 99-250/256 3.2551 -0.003 Seven-year note 96-204/256 3.2707 0.003 10-year note 97-84/256 3.1923 -0.002 20-year bond 95-168/256 3.5565 -0.006 30-year bond 92-16/256 3.2944 -0.011 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap spread 32.75 1.50 U.S. 3-year dollar swap spread 15.00 0.50 U.S. 5-year dollar swap spread 3.00 0.50 U.S. 10-year dollar swap 7.00 -0.25 spread U.S. 30-year dollar swap -24.50 0.25 spread (Reporting by Herbert Lash; editing by David Evans and Nick Zieminski)

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