(Updates with market activity, analyst comments)
    By Ross Kerber
    June 10 (Reuters) - Traders sent longer-term U.S. Treasury
yields higher Thursday after new data showed a further increase
of consumer prices in May, steepening a closely watched part of
the yield curve.
    The benchmark 10-year yield was up 2.7 basis
points at 1.5161% in morning trading and had reached as high as
    Much of the movement came after the U.S. Labor Department
said its consumer price index increased 0.6% last month after
surging 0.8% in April, which was the largest gain since June
2009. Separately, the department said initial claims
for state unemployment benefits fell to their lowest level in 15
    The increase in the 10-year yield broke a pattern of
declines in recent days but left the note still below its range
of last week. Several analysts said the inflation report was not
a major surprise, keeping the focus on what new guidance if any
might come from U.S. Federal Reserve officials next week.
    "I think the market is really buying into the narrative that
the rise in inflation is in fact transient because you're not
seeing that necessarily being priced into fears in the bond
market," said Subadra Rajappa, head of U.S. rates strategy for
Societe Generale.
    The trading pushed up the part of the U.S. Treasury yield
curve measuring the gap between yields on two- and 10-year
Treasury notes, seen as an indicator of economic
expectations. It was at 136 basis points, about 2 basis points
higher than Wednesday's close.
    The 10-year TIPS yield was at -0.843% and the
breakeven inflation rate was at 2.354%, still near its lowest
since April.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up less than
a basis point at 0.1568%.
    The yield on the one-month note was at 0.0025%,
the lowest since May when it touched 0% for the first time since
March 2020.
    Traders will watch the results of an auction of $24 billion
of 30-year Treasury bonds due around 1 p.m. ET. 

        June 10 Thursday 9:24AM New York / 1324 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.025        0.0253    0.000
 Six-month bills               0.04         0.0406    0.000
 Two-year note                 99-240/256   0.1568    0.002
 Three-year note               99-198/256   0.326     0.013
 Five-year note                99-228/256   0.7725    0.027
 Seven-year note               100-96/256   1.1938    0.028
 10-year note                  101          1.5161    0.027
 20-year bond                  102-16/256   2.1225    0.026
 30-year bond                  103-220/256  2.1983    0.030
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         6.50         0.00    
 U.S. 3-year dollar swap         8.50         0.25    
 U.S. 5-year dollar swap         7.00         0.00    
 U.S. 10-year dollar swap       -2.75         0.25    
 U.S. 30-year dollar swap      -30.00        -0.25    
 spread (Reporting by Ross Kerber in Boston
Editing by Chizu Nomiyama)

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