TREASURIES-Nominal U.S. yields little changed as inflation remains in focus

 (Adds results of 52-week auction, fresh prices)
    By Herbert Lash
    NEW YORK, May 18 (Reuters) - Nominal U.S. Treasury yields
remained little changed on Tuesday but strong consumer demand as
seen in Walmart Inc and Home Depot Inc results
provided fodder for investors who take issue with the Federal
Reserve's narrative of transient inflation.
    The yield on 10-year Treasury notes was up 0.9
basis points at 1.649%, below a spike above 1.75% reached in
late March.
    But breakeven rates rose, the difference in yield between
inflation protected securities and nominal debt.
    "The market is pushing back on the Fed's narrative that
inflation is actually transient," said Subadra Rajappa, head of
U.S. rates strategy at Societe Generale. "Clearly you're seeing
the inflation expectations being priced into breakevens."
    Trying to judge inflation concerns by looking at nominal
yields is difficult in an environment where the Fed is buying a
lot of securities, Rajappa said.
    The Treasury sold $34 billion in 52-week notes at a new
record low of 0.055%, down from a previous low of 0.065% last
month, reflecting the power of the Fed's zero interest rate
policy, Action Economics said.
    The market was waiting for the release on Wednesday of the
minutes from the Federal Open Market Committee's meeting in
April, but nothing significant is expected, said Guy LeBas,
chief fixed income strategist at Janney Montgomery Scott.
    "It's unlikely that we're going to get material changes out
of the FOMC minutes," he said. 
    On the margin there are concerns about inflation, LeBas
    "Forward breakevens are lower than spot breakevens,
suggesting the market thinks inflation is going to rise then
fall," he said.
    Walmart raised its full-year earnings forecast after
shoppers armed with government stimulus checks ventured back
into stores and Home Depot reported a bigger-than-expected 31%
jump in quarterly same-store sales.
    While the strong results were driven by pent-up demand, the
longer-term impact on inflation from increased consumer spending
is still an open question.
    U.S. homebuilding fell more than expected in April as a
Commerce Department report showed housing starts tumbled 9.5%.

    The yield on the 30-year Treasury bond was up
1.6 basis points to 2.371%. 
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) edged up to
2.734%, after ending Monday at 2.717%, near its highest close in
just over a decade.
    The 10-year TIPS breakeven rate was last at
2.554%, indicating the market sees inflation averaging 2.5% a
year for the next decade.
    May 18 Tuesday 2:15PM New York / 1815 GMT
                                 Price         Current    Net
                                               Yield %    Change
 Three-month bills               0.015         0.0152     0.000
 Six-month bills                 0.03          0.0304     -0.003
 Two-year note                   99-243/256    0.1511     -0.002
 Three-year note                 99-194/256    0.3315     -0.002
 Five-year note                  99-162/256    0.8259     -0.003
 Seven-year note                 99-182/256    1.2936     0.004
 10-year note                    99-200/256    1.6488     0.009
 20-year bond                    93-160/256    2.2776     0.016
 30-year bond                    100-20/256    2.3713     0.016
   DOLLAR SWAP SPREADS                                    
                                 Last (bps)    Net        
 GooU.S. 2-year dollar swap       10.25          0.25     
 U.S. 3-year dollar swap spread   11.50          0.25     
 U.S. 5-year dollar swap spread    8.25          0.50     
 U.S. 10-year dollar swap         -4.00          0.50     
 U.S. 30-year dollar swap        -32.00          0.25     
 spread (Reporting by Herbert Lash; editing by Jonathan Oatis and
Richard Chang)