TREASURIES-U.S. yields mostly flat even as prices paid index spikes

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By Herbert Lash NEW YORK, May 17 (Reuters) - U.S. Treasury yields traded little changed on Monday, shrugging off the highest prices ever paid in a May manufacturing survey for New York state, as traders mull how tolerant Federal Reserve policymakers will be of a faster pace of inflation. The yield on benchmark 10-year U.S. Treasury notes was up 1 basis point at 1.645%, below a spike to 1.77% in late March. The Empire State Manufacturing Survey, produced by the New York Fed, showed the prices paid index rose to a record 83.5, the highest since the data series began in 2001, said Tom Simons, money market economist at Jefferies & Co. "The Fed has been pretty consistent in its message that it's going to be quite tolerant of inflation, it's not going to cause them to raise rates prematurely or pull back on asset purchases," Simons said. "That's why the market has been relatively calm," he said. Weaker-than-expected U.S. retail sales on Friday reassured the market that extended inflation was not ahead and that the Fed would not be forced to tighten early, said Sebastien Galy, senior macro strategist at Nordea Asset Management. Bond markets barely reacted to remarks on Monday from Federal Reserve officials. The U.S. economy is in a "very fluid period" and if data were to threaten to raise inflation expectations the Fed would act, said Federal Reserve Vice Chair Richard Clarida. The baseline view is that achieving maximum employment will not put undue pressure on prices, Clarida said. Now is not the time to change the Fed's strong accommodative stance, Atlanta Fed President Raphael Bostic told CNBC, adding a healthy level of inflation is a sign the economy is growing. The yield on the 30-year Treasury bond was up 0.1 basis point at 2.356%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.703%, after closing at 2.731% on Friday, near its highest close in just over a decade. The 10-year TIPS breakeven rate was last at 2.552%, indicating the market sees inflation averaging about 2.5% a year for the next decade. May 17 Monday 10:32AM New York / 1432 GMT Price Current Net Yield % Change (bps) Three-month bills 0.01 0.0101 0.000 Six-month bills 0.03 0.0304 0.000 Two-year note 99-241/256 0.1551 0.004 Three-year note 99-188/256 0.3393 0.010 Five-year note 99-152/256 0.8339 0.018 Seven-year note 99-180/256 1.2948 0.012 10-year note 99-212/256 1.6437 0.009 20-year bond 93-236/256 2.2581 0.009 30-year bond 100-104/256 2.356 0.001 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 10.00 -0.75 spread U.S. 3-year dollar swap 11.00 -1.00 spread U.S. 5-year dollar swap 7.75 -0.75 spread U.S. 10-year dollar swap -4.25 -0.50 spread U.S. 30-year dollar swap -32.00 -0.50 spread (Reporting by Herbert Lash in New York Editing by Matthew Lewis)