TREASURIES-U.S. bonds slip ahead of supply, end of QE 2 eyed

* Traders trim prices ahead of supply

* Treasury to sell $35 bln in 2-yr notes at 1700 GMT

* Yen repatriation proceeds should support indirect bid

* U.S. Feb spending increase, price gains weigh
(Adds comment, updates prices before auction)

By Ellen Freilich

NEW YORK, March 28 (Reuters) – U.S. Treasuries slipped on
Monday as traders trimmed positions to make way for new supply
and looked ahead to mid-year when the Federal Reserve’s program
of buying Treasuries is set to end.

Government data showing U.S. personal spending and
inflation accelerated in February also weighed on prices.

The market prepared for two-, five- and seven-year Treasury
note auctions, a total of $99 billion in supply, starting with
Monday’s $35 billion two-year sale at 1 p.m. EDT (1700 GMT).

Benchmark 10-year Treasury notes (US10YT=RR: Quote, Profile, Research) were down 8/32,
their yields up at 3.47 percent from 3.44 percent.

“We sold off at the opening in Tokyo and there was a small
amount of additional selling when the data showed consumers
were out there spending last month,” said Chris Rupkey, chief
financial economist at Bank of Tokyo/Mitsubishi UFJ.

Lower oil prices also implied less risk to the global
growth outlook, “and that’s a negative for bonds,” he added.

On Wall Street, stock prices (.DJI: Quote, Profile, Research)(.IXIC: Quote, Profile, Research)(.SPX: Quote, Profile, Research) rose.

Both supply and anticipation of the end of the Fed’s
six-month buying program weighed on Treasuries.

“The auctions are jammed into the first part of the week
and that’s putting upward pressure on yields,” Rupkey said.

Despite that pressure, the two-year auction should go
“fine,” thanks to the “significant backup in rates,” said
Justin Lederer, fixed-income rates strategist at Cantor
Fitzgerald in New York.

“Yen intervention proceeds should be reflected in indirect
bidder participation, which was 31.3 percent last month and has
averaged 33 percent over the past six months,” he said.

“Treasury auctions coming through their 1 p.m. level has
been the theme of 2011, with nine out the last nine coming on
or through its 1 p.m. yield level,” he added.

In when-issued trade, the two-year notes to be sold at 1
p.m. EDT (1700 GMT) yielded 0.828 percent.

More and more, the market is contemplating the prospective
end of the Fed’s $600 billion of Treasury purchases, part of
the U.S. central bank’s plan to stimulate economic growth, and
scheduled to conclude at midyear, analysts said.

Hawkish remarks by a Fed policymaker on the subject on
Friday drove the 10-year yield above a key support level. Fed
Bank of Philadelphia President Charles Plosser said the Fed
would have to raise rates and shrink its balance sheet “in the
not-too-distant future” to avoid damaging the economy.

Chicago Fed President Charles Evans, a Fed official often
characterized as dovish, said the Fed should complete its
current round of bond-buying but likely does not need to extend

On Saturday, Fed Bank of St. Louis President James Bullard,
viewed as a centrist, told reporters in Marseilles, France that
the Fed should consider trimming the program, given “pretty
good” U.S. economic data, according to Bloomberg News.

“The market is absorbing the more hawkish comments and
coming to grips with the realization that after the middle of
the year, the Fed won’t be buying $75 to $100 billion of
Treasuries every month,” said Cary Leahey, managing director
and economist at Decision Economics in New York.

Two-year Treasury notes (US2YT=RR: Quote, Profile, Research) were down 2/32, their
yields rising to 0.782 percent from 0.745 percent on Friday.

U.S. consumer spending rose slightly more than expected in
February for the eighth straight month of gains, government
data showed on Monday, while inflation picked up slightly.

The Federal Reserve’s preferred measure of consumer
inflation — the core PCE index excluding food and energy —
rose 0.2 percent after a like increase in January.

An unexpected rise in pending home sales in February evoked
little discernible market reaction.
(Editing by Dan Grebler)

TREASURIES-U.S. bonds slip ahead of supply, end of QE 2 eyed