TREASURIES-Yields jump after Fed's Powell offers more inflation tolerance

(Updates yields, adds analyst comment and note auction results) By Ross Kerber Aug 27 (Reuters) - Longer-term U.S. Treasury yields climbed to their highest levels in months on Thursday, steepening the yield curve, after Federal Reserve Chairman Jerome Powell announced a new policy framework promoting higher inflation to spur economic recovery and job creation. The benchmark 10-year yield was last up 5.5 basis points at 0.7423%, its highest since June 19, while the yield on the 30-year bond was 9 basis points higher at 1.496%. Speaking at the Kansas City Fed's virtual economic symposium, Powell said the U.S. central bank would allow periods of inflation above its current 2% target level before hiking interest rates as part of an aggressive new strategy to restore full employment and lift super-low inflation back to healthier levels. Powell "has basically said it's an inflation target in name only, and that brought in sellers," said Tom di Galoma, managing director of Seaport Global Holdings. Priya Misra, global head of rates strategy at TD Securities in New York, said the market was disappointed that Powell did not signal near-term easing, such as quantitative easing, to keep long-term rates low. "I think he set up the conceptual framework for the Fed to ease in September, but I think the market wanted a more explicit hint today," she said. Meanwhile, the U.S. Treasury's $47 billion, seven-year note auction was met with strong demand, resulting in a high yield of 0.519% and a bid-to-cover ratio of 2.47. Demand was also good for sizable auctions earlier this week of two- and five-year notes. On the economic data front, the number of Americans filing new claims for unemployment benefits hovered around 1 million last week, as expected, suggesting the labor market recovery was stalling as the COVID-19 pandemic drags on and financial aid from the government dries up. The Commerce Department's revision to second-quarter GDP showed the economy contracted at a 31.7% annual rate during the peak of coronavirus shutdowns, only a bit less dire than its report last month indicating a 32.9% decline. A closely watched part of the U.S. Treasury yield curve measuring the gap between the yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was last at 58.30 basis points, about 4.7 basis points higher than Wednesday's close and its highest since June 10. August 27 Thursday 2:36PM New York / 1936 GMT Price Current Net Yield % Change (bps) Three-month bills 0.1 0.1014 0.002 Six-month bills 0.11 0.1119 0.000 Two-year note 99-239/256 0.1583 0.004 Three-year note 99-210/256 0.1858 0.006 Five-year note 99-184/256 0.3067 0.017 Seven-year note 99 0.5222 0.037 10-year note 98-224/256 0.7423 0.055 20-year bond 97-84/256 1.2771 0.084 30-year bond 97-20/256 1.4964 0.090 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.50 0.75 spread U.S. 3-year dollar swap 7.50 1.00 spread U.S. 5-year dollar swap 5.75 0.75 spread U.S. 10-year dollar swap -0.50 -0.25 spread U.S. 30-year dollar swap -37.25 -1.25 spread (Reporting by Ross Kerber in Boston; Additional reporting by Karen Pierog in Chicago; Editing by Jonathan Oatis and Andrea Ricci)