TREASURIES-Yields rise as traders focus on inflation data, Fed rate hikes

(Adds auction results, comment) By Herbert Lash NEW YORK, Oct 11 (Reuters) - Longer-dated U.S. Treasury yields shot to multi-year highs on Tuesday as bonds were slammed globally by a rout in the UK gilts market amid growing concerns that U.S. inflation data this week will not stop the Federal Reserve's rapid hiking of interest rates. Investors would like to see inflation starting to slow when data for September is released on Wednesday for prices that sellers get for their products, and on Thursday for prices consumers pay for purchases. The year-over-year Producer Price Index, excluding food and energy, is expected to have risen 7.3% in September, the same as in August. The Consumer Price Index over the past 12 months is seen rising 8.1%, a bit slower than the previous 8.3% clip, according to economists polled by Reuters. The market expects the Fed to hike its benchmark overnight interest rate for a fourth straight time by 75 basis points at the its Nov. 1-2 policy meeting. Investors are concerned the Fed's policy tightening, its most aggressive in decades, could jolt the economy into recession. "We could be facing a time here where the Fed needs to, not necessarily pivot, but stop raising rates because it's starting to impact a lot of industries, a lot of credit. It certainly has dampened equity values," said Tom di Galoma, managing director at Seaport Global Holdings LLC in Greenwich, Connecticut. Yields on the 30-year bond jumped almost 12 basis points to the highest in nearly nine years at 3.959% as trading in Treasuries resumed after a U.S. holiday on Monday. Yields on 10-year Treasury notes climbed just over 12 basis points to 4.006%, near last month's 12-year high of 4.019%, as bond investors latch onto a message being hawked by Fed officials that rates will stay higher for longer. "The pain that the markets are feeling is not necessarily being felt by the majority of consumers, and therefore the Fed continues to feel justified in their quest to bring inflation back in line," said Peter Cramer, senior portfolio manager at SLC Management. "They're going to be more willing to have a pronounced period of higher rates before they start to return to a period of providing stimulus to the market again," Cramer said. Rates eased a bit after the Bank of England said it would buy up to 5 billion pounds of inflation-linked debt per day, starting on Tuesday, until the end of this week in an effort to stem a collapse in Britain's 2.1 trillion pound ($2.31 trillion) bond market. The BoE's emergency intervention after markets balked at the British government's economic plans has made liquidity in the UK market very difficult, di Galoma said. The Treasury on Tuesday sold $40 billion in three-year notes at a high yield of 4.318%. On Wednesday, the Treasury will auction $32 billion of 10-year notes, and on Friday $18 billion of 30-year bonds. Yields on U.S. Treasury Inflation-Protected Securities traded near multi-year highs, with the five-year rising to 1.86% and the 10-year hitting a 12-year high of 1.737%. The gap between yields on two- and 10-year Treasury notes , seen as a recession harbinger when the short end yields more than the long end, was at -39.8 basis points. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was unchanged at 4.308%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities was last at 2.446%. The 10-year TIPS breakeven rate was last at 2.319%, indicating the market sees inflation averaging about 2.3% a year for the next decade. The U.S. dollar five years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.329%. Oct. 11 Tuesday 2:48PM New York / 1848 GMT Price Current Net Yield % Change (bps) Three-month bills 3.3525 3.4262 0.048 Six-month bills 3.9775 4.1127 0.021 Two-year note 99-228/256 4.3079 0.000 Three-year note 97-180/256 4.3437 0.007 Five-year note 99-232/256 4.1458 0.009 Seven-year note 98-240/256 4.0514 0.021 10-year note 90-148/256 3.9122 0.027 20-year bond 89-56/256 4.1795 0.042 30-year bond 84-140/256 3.8783 0.036 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap spread 32.25 0.50 U.S. 3-year dollar swap spread 8.25 0.75 U.S. 5-year dollar swap spread 2.25 0.25 U.S. 10-year dollar swap spread 1.00 0.50 U.S. 30-year dollar swap spread -45.75 -0.75 (Reporting by Herb Lash and Wayne Cole; Editing by Jacqueline Wong, Paul Simao and Leslie Adler)