(Adds auction results, quotes; updates prices)
* Bank of England may accelerate rate increases
* Treasury has soft demand for $30-year bond auction
* Choppy stocks trading sways bond prices
By Karen Brettell
NEW YORK, Feb 8 (Reuters) - U.S. Treasury yields rose on Thursday in choppy trading as stocks pared some of their earlier weakness and after the Bank of England said interest rates probably need to rise sooner, adding to expectations of reduced central bank stimulus globally.
Rising bond yields have spooked equity investors who worry that higher rates may slow down growth. Volatility in equities, at the same time, has at times added to a bid to hold low risk U.S. government debt.
"It is circular," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. "Higher rates lead to lower stocks and lower stocks lead to lower rates to some degree, and we're trying to figure out where the transfer mechanism from higher rates into slower growth potential is going to occur."
Improving inflation and other economic data has led investors to adjust for the prospect of faster economic growth and the potential that the Federal Reserve may raise interest rates faster than previously expected.
A brightening outlook internationally is adding to pressure on global fixed income markets. The BoE raised its growth forecasts for Britain due to the strong global recovery. "We've got yet another confirmation that a major central bank is wringing its hands over the possibility that economic growth is accelerating beyond current capacity," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.
Benchmark 10-year note yields rose as high as 2.884 percent on Thursday, just below Monday's four-year high of 2.885 percent. The notes were last down 6/32 in price to yield 2.853 percent.
Investors are also preparing for a large uptick in U.S. government debt issuance this year to make up for declining purchases by the U.S. central bank.
The Treasury saw relatively soft demand for a $16 billion sale of 30-year bonds on Thursday, the final sale of $66 billion in coupon-bearing supply this week. The debt sold at less than 1 basis point higher than where the bonds traded before the auction. The result was not bad, however, considering that bonds rallied heading into the auction as stocks fell.
"The tail occurred effectively at the low yields of the dayit's not as dire as the outright statistics might suggest the sponsorship for Treasuries was," said Lyngen.
(Editing by Bernadette Baum and Frances Kerry)
Change vsCurrent
Nykyield Three-month bills 1.525 (+0.01) 1.552 Six-month bills 1.7 (+0.01) 1.739 Two-year note 99-24/32(-) 2.138 Five-year note 99-03/32 (-02/32) 2.574 10-year note 99-04/32 (-06/32) 2.853 30-year bond 92-14/32 (-16/32) 3.144
DOLLAR SWAP SPREADS
LASTChange U.S. 2-year dollar swap spread23.25 (+1.25) U.S. 3-year dollar swap spread17.75 (+0.75) U.S. 5-year dollar swap spread 9.25 (+0.25) U.S. 10-year dollar swap spread2.00 (+0.50) U.S. 30-year dollar swap spread-17.25 (-1.50)))Keywords: USA BONDS/
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