TREASURIES-U.S. debt yields rise; 10-yrs test yield support

* Interest rate fears continue to hurt yields

* Possible government shutdown adds to weakness

* Treasury to sell $66 bln in 3s, 10s and 30s next week
(Adds comments, updates prices)

By Karen Brettell

NEW YORK, April 8 (Reuters) – U.S. Treasuries yields rose
on Friday, with bonds on track for a third consecutive week of
losses as interest rate fears continued to weigh on the
market.

Benchmark 10-year note yields tested technical support
levels.

Concerns about the impact of a possible government shutdown
this weekend also hurt Treasuries, while some investors
prepared for sales next week of $66 billion in three-, 10- and
30-year debt.

Benchmark 10-year note yields traded at the top of what
traders say is a band of support at around 3.60 percent. If
they hold above this level they are likely to test support at
around 3.75 percent to 3.80 percent.

Weakness in Treasuries followed yield rises in German bunds
as investors bet that the European Central Bank would continue
to raise interest rates after hiking them on Thursday for the
first time since 2008, said Jim Vogel, interest rate strategist
at FTN Financial in Memphis, Tennessee.

“Commentators see yesterday’s quarter point as the first
step in a series of tightenings, regardless of what bank
officials say,” he said.

Some investors were also frustrated that budget negotiators
in Washington might not reach an agreement before a midnight
deadline that would shut down the federal government.

“The thought of the government shutdown is making some
people nervous about the ability of our leaders to get us
through the financial issues that are in front of us,” said
Alan De Rose, head trader in government trading and finance at
Oppenheimer and Co in New York.

Analysts at JPMorgan said foreign investors became sellers
of Treasuries when the government shut down in 1995.

Short and intermediate Treasury yields have been steadily
climbing to near the top of their recent range, and impending
supply and the likelihood that investors will remain fixated on
the expectation of higher interest rates may push them back to
their highs.

The recent backup in yields, however, could help new sales
of longer-dated debt next week, which would take place even
under a federal government shutdown.

“I don’t anticipate any large problems getting supply done
next week,” said De Rose. “The fact that yields have backed up
will be helpful in that regard.”

Two-year notes (US2YT=RR: Quote, Profile, Research) fell 2/32 in price on Friday to
yield 0.83 percent, up from 0.79 percent late on Thursday. The
notes, which are seen as the most susceptible to interest rate
risk, reached a 10-month high of 0.90 percent on April 1.

Five-year notes (US5YT=RR: Quote, Profile, Research) fell 7/32 in price to yield 2.33
percent, up from 2.28 percent on Thursday. They traded as high
as 2.42 percent on Feb. 9.

Ten-year notes (US10YT=RR: Quote, Profile, Research) fell 11/32 in price to yield
3.60 percent, up from 3.55 percent. They traded as high as 3.77
percent on Feb. 9 and as low as 3.15 percent on March 16.

Thirty-year bonds (US30YT=RR: Quote, Profile, Research) fell 16/32 in price to yield
4.65 percent, up from 4.62 percent on Thursday. They have
ranged from 4.71 percent on Feb. 9 to a recent low of 4.32
percent on March 16.
(Editing by Dan Grebler)

TREASURIES-U.S. debt yields rise; 10-yrs test yield support