TREASURIES-Treasury yields rise as rate hike risk weighs

* Prices fall as investors look to tighter monetary policy

* 5-year TIPS breakevens reach highest since July 2008

* T-bill squeeze eases, repurchase rates rise

By Karen Brettell

NEW YORK, April 6 (Reuters) – U.S. Treasuries yields rose
on Wednesday for the second day as investors continued to focus
on divergent views from Federal Reserve members over when the
central bank will begin tightening its easy money policy, and
raise interest rates.

A meeting by the European Central Bank on Thursday, where
it is expected to raise rates for the first time since the
financial crisis, will also be closely watched by U.S. debt
investors.

“I think everyone’s focused on the ECB on Thursday,” with
few other major data releases, said Richard Bryant, head of
Treasury trading at MF Global Securities in New York.

Two-year notes (US2YT=RR: Quote, Profile, Research) fell 1/32 in price to yield 0.84
percent, up from 0.82 percent on Tuesday and five-year notes
(US5YT=RR: Quote, Profile, Research) fell 6/32 in price to yield 2.31 percent, up from
2.27 percent.

Benchmark ten-year notes (US10YT=RR: Quote, Profile, Research) fell 8/32 in price to
yield 3.51 percent, up from 3.48 percent on Tuesday and
thirty-year bonds (US30YT=RR: Quote, Profile, Research) fell 9/32 in price to yield 4.52
percent, up from 4.51 percent.

Breakevens on five-year Treasury Inflation-Linked
Securities, which reflect market inflation expectations,
meanwhile, rose to their highest level since July 2008, as oil
prices neared their two and a half year peak on widespread
unrest in the Middle East and North Africa.

TIPS breakeven rates have been steadily rising as some
traders fear the U.S. central bank will lose control of
inflation as it seeks to stimulate the economy. The five-year
rate rose to 241 basis points from 238 basis points on
Tuesday.

The minutes of the Federal Open Market Committee meeting
last month, that were released on Tuesday, acknowledged the
surge in oil and food prices, but most members of the
rate-setting body through inflationary risk from the commodity
spike would be temporary.

A squeeze on short-term rate collateral, meanwhile, eased
with repo borrowing rates and fed fund rates both rising off
their lows.

“There was a lot of uncertainty about what was going to
happen with that, it was a large contributor to the overall
volatility in the market over the past two days,” said Keith
Blackwell, interest rate strategist at RBC Capital Markets in
New York.

Fears that the Federal Reserve would need to intervene to
ease a shortage of very short-dated Treasury bills in a reverse
repurchase operation hurt shorter and intermediate-dated
Treasury notes on Tuesday.

Reverse repurchases are seen as a tightening measure and
hurt shorter maturities like two-year notes, which are seen as
being the most vulnerable to interest rate risk.

One-month Treasury bill yields (US1MT=RR: Quote, Profile, Research) rose to 4.5 basis
points on Wednesday, after falling to near zero on Monday.

The Federal Reserve will buy between $1.5 billion and $2.5
billion in debt due 2028 to 2041 on Wednesday.
(Editing by Theodore d’Afflisio)

TREASURIES-Treasury yields rise as rate hike risk weighs