TREASURIES-Yields retain gains after three-year note auction

(Recasts, adds three-year note auction results, analyst comments, byline) By Karen Brettell and Karen Pierog April 12 (Reuters) - U.S. Treasury yields remained slightly higher on Monday following a good three-year note auction and ahead of a 10-year note offering later in the day as $120 billion in coupon supply hits the market this week, testing investor appetite for debt. The $58 billion of three-year notes were sold at a high yield of 0.376% and with a bid-to-cover ratio, a gauge of demand, of 2.32 times. Analysts said the results were solid given the size and timing of the auction. The three-year yield was last 2.2 basis points higher at 0.3576%. The benchmark 10-year yield was last up less than a basis point at 1.6728%, holding below a 14-month high of 1.776% reached on March 30. Yields have dipped from one-year highs reached last month on improving demand for the debt, though they remain elevated with investors concerned that faster economic growth and rising price pressures will continue to push yields higher. Increasing supply as the government finances higher fiscal spending and widening deficits is adding to the yield increases. Coming up on Monday is a $38 billion auction of 10-year notes, followed on Tuesday by a $24 billion offering of 30-year bonds. "I don’t think that this is a month where we have particularly high risk for the long-duration auctions,” said Tom Simons, a money market economist at Jefferies in New York. Aside from the auctions, the market is also focused on key data this week, including U.S. consumer price data for March due out on Tuesday. Investors are betting that price pressures will increase due to increased fiscal and monetary stimulus and as businesses reopen from COVID-19 related closures. Comparisons with last year are also likely to be strong, due to a drop in inflation a year ago when businesses closed due to COVID-19. “This is the first month we’re going to see the big base effect pump up the year-over-year comparisons,” said Simons. Market participants are aware of the effect, however, and the Federal Reserve has indicated it will look through any temporary inflation, making it unlikely that a strong number will create a hawkish response from the U.S. central bank. “I don’t think there is a real risk that the hiking timeline is pulled forward or anything like that,” Simons said. Data on Friday showed that U.S. producer prices notched their largest annual gain in 9-1/2 years last month. Meanwhile, Federal Reserve Chair Jerome Powell, in a television interview on Sunday, said the U.S. economy is at an "inflection point" with expectations that growth and hiring will pick up speed in the months ahead, but also with risks if a hasty reopening leads to a continued increase in coronavirus cases. "I view that as a non-event because it's the same message that has been promoted by the Fed for so long now," said Bill Merz, head of fixed income research at U.S. Bank Wealth Management in Minneapolis. "They've really been singing the same tune since March and April last year." The two-year Treasury yield, which typically moves in step with interest rate expectations, was last up 1.4 basis points at 0.1708%. A closely watched part of the yield curve, which measures the gap between yields on two- and 10-year Treasury notes , was less than a basis point steeper at 150.56 basis points. April 12 Monday 12:20AM New York / 1620 GMT Price Current Net Yield % Change (bps) Three-month bills 0.015 0.0152 0.002 Six-month bills 0.035 0.0355 -0.002 Two-year note 99-233/256 0.1708 0.014 Three-year note 99-176/256 0.3576 0.022 Five-year note 99-84/256 0.8886 0.021 Seven-year note 99-100/256 1.3419 0.012 10-year note 95-12/256 1.6728 0.007 20-year bond 94-72/256 2.2333 0.010 30-year bond 90 2.3426 0.004 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 11.50 -0.75 spread U.S. 3-year dollar swap 14.25 -0.75 spread U.S. 5-year dollar swap 10.75 -0.50 spread U.S. 10-year dollar swap 2.25 -0.25 spread U.S. 30-year dollar swap -22.25 -0.25 spread (Reporting by Karen Brettell in New York and Karen Pierog in Chicago; editing by Jonathan Oatis)