* Treasury's auction of U.S. five-year notes saw average demand
* Fed minutes show FOMC expectation of upside growth trajectory
* U.S. 2-year hits 9-year high; 30-year yields touch highest since July 2015
(Recasts, changes byline, adds auction results, analyst comment, table, updates prices in text)
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 21 (Reuters) - U.S. Treasury yields rose on Wednesday in choppy trading, after minutes of the latest Federal Reserve meeting affirmed expectations of further rate increases this year, with economic growth seen accelerating.
U.S. 30-year yields, which move inversely to prices, hit their highest level since July 2015 after the Fed minutes, while those on 10-year notes hit session peaks.
Yields on U.S. two-year notes, the maturity most sensitive to interest rate expectations, hit fresh 9-1/2-year highs earlier in the session.
The Federal Reserve's rate-setting committee showed more confidence in the need to keep raising interest rates at its last policy meeting, with most believing that inflation would perk up.
It added that recent information received by voting members on inflation "along with prospects for a continued solid pace of economic activity provided support for the view that inflation ... would likely move up in 2018." "There was not a whole lot of surprise in the grand scheme of things," said Michael Skordeles, U.S. macro strategist at Suntrust Advisory Services in Atlanta.
"It lined up with market expectations for a continued gradual pace in interest rate hikes. (The minutes) reassured that there won't really be a whole lot of change despite having a regime change," he added.
In mid-afternoon trading, U.S. 10-year Treasury yields were at 2.931 percent, up from Tuesday's close at 2.893 percent.
The U.S. 30-year bond yield touched 3.218 percent , the highest since July 2015, up from Tuesday's 3.155 percent.
The yield on the two-year Treasury note was at 2.266 percent after hitting a nine-year peak of 2.282 percent earlier in the day.
The Treasury market showed little reaction to an average $35 billion U.S. 5-year note auction, which was part of the week's $258 billion issuance intended to help fund President Donald Trump's tax overhaul and a two-year budget deal.
The tax overhaul signed into law in December is expected to add as much as $1.5 trillion to the federal debt load, while the budget agreement would raise government spending by almost $300 billion over the next two years.
Demand from investors was fair, analysts said.
The Treasury notes sold at a yield of 2.658 percent versus 2.660 percent at the bid's close, with a 2.44 bid-to-cover ratio, slightly below last month's 2.48.
The auction showed direct bidders taking 12.7 percent, the highest since August 2017. Indirect bidders took 58 percent of the offer, the smallest since April 2017, and dealers took 29.3 percent. February 21 Wednesday 2:58PM New York / 1958 GMT
PriceUS T BONDS MAR8 142-26/32-1-2/32 10YR TNotes MAR8 120-60/256 -0-64/25
6
PriceCurrent Net
Yield % Change
(bps)Three-month bills 1.6175 1.6467-0.007Six-month bills 1.8075 1.8495-0.006Two-year note 99-246/256 2.27010.009Three-year note 99-124/256 2.43030.016Five-year note 98-162/256 2.67210.024Seven-year note 97-200/256 2.85460.03610-year note 98-104/256 2.93530.04230-year bond 95-224/256 3.21540.060
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps) U.S. 2-year dollar swap26.00-0.75spread U.S. 3-year dollar swap23.75 1.75spread U.S. 5-year dollar swap12.50 2.75spread U.S. 10-year dollar swap2.75 1.75spread U.S. 30-year dollar swap-16.75 0.00spread (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Kate Duguid and April Joyner; Editing by Meredith Mazzilli)
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