TREASURIES-U.S. yields climb as CPI data stokes inflation worry

(Updates prices, adds details 10-year auction) By Chuck Mikolajczak NEW YORK, May 12 (Reuters) - U.S. Treasury yields climbed on Wednesday, with the 10-year note hitting its highest level in a month, following a much stronger than expected reading on consumer prices that heightened worries the economy may be heading towards a sustained period of higher inflation. The Labor Department said the consumer price index surged 0.8% in April, its largest rise since June 2009, after rising 0.6% in the prior month. The "core" reading, which excludes the more volatile food and energy portions, jumped 0.9%. Expectations called for overall CPI to rise 0.2% and the core reading to climb 0.3%. The yield on 10-year Treasury notes was up 7.1 basis points to 1.695%. The yield climbed as high as 1.697%, its highest since April 13 and on pace for its biggest one-day basis point increase since March 18. The U.S. Federal Reserve has repeatedly stated that it views any inflation to be transitory in nature. On Wednesday, Fed Vice Chair Richard Clarida said it will be "some time" before the U.S. economy is healed enough for the Federal Reserve to consider pulling back its crisis levels of support and he expects the rise in prices to be temporary. "The market is getting ahead of itself in terms of pricing in a higher chance of inflation and rates rising while the Fed is being very clear and very cautious in setting expectations, telling people you have to be patient, you may see a lot of downside risk," said Kelly Ye, director of research at IndexIQ in New York. "So it is going to be a continued push-and-pull in terms of the Fed telling people you guys are getting ahead of yourself while investors are scared and thinking about what they are going to do if inflation really starts to rise." Analysts have noted there is likely to be higher reading in economic data in the coming months, as year-over-year comparisons are extreme due to the severe economic shutdown that began in March 2020. The yield on the 30-year Treasury bond was up 6.3 basis points to 2.415%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.734%, after closing at 2.697% on Tuesday, near its highest close in just over a decade. The 10-year TIPS breakeven rate was last at 2.566%, indicating the market sees inflation averaging 2.5% a year for the next decade. A Treasury auction of $41 billion in 10-year notes was strong, with some analysts noting the rise in yields may have attracted buyers. A $27 billion sale of 30-year bonds on Thursday will bring even more supply to the market. May 12 Wednesday 2:59PM New York / 1859 GMT Price US T BONDS JUN1 155-18/32 -1-12/32 10YR TNotes JUN1 131-232/256 -0-140/2 56 Price Current Net Yield % Change (bps) Three-month bills 0.015 0.0152 0.000 Six-month bills 0.0325 0.033 -0.002 Two-year note 99-235/256 0.1668 0.006 Three-year note 99-174/256 0.3576 0.028 Five-year note 99-114/256 0.8644 0.063 Seven-year note 99-98/256 1.3431 0.070 10-year note 94-228/256 1.6952 0.071 30-year bond 88-148/256 2.4153 0.063 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 10.25 0.75 spread U.S. 3-year dollar swap 11.25 -1.25 spread U.S. 5-year dollar swap 8.25 0.25 spread U.S. 10-year dollar swap -3.00 0.00 spread U.S. 30-year dollar swap -30.75 -0.75 spread (Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama and Andrea Ricci)