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TREASURIES-U.S. yields slip on doubts over how fast economy can roar

 (Adds auction of $13 billion in 10-year TIPS)
    By Herbert Lash
    NEW YORK, May 20 (Reuters) - Yields on nominal U.S. Treasury
debt and inflation-linked securities fell on Thursday after
factory activity in the U.S. mid-Atlantic region slowed in May
from a record pace, casting doubt on how fast the economy can
continue to roar.
    Breakevens on 10-year Treausury inflation-protected
securities, or TIPS, fell to a session low of 2.44% after the
auction of $13 billion in 10-year TIPS securities.
    The Philadelphia Federal Reserve Bank said its business
activity index fell to 31.5 from 50.2 in April, its highest pace
in nearly half a century. The reading was shy of economists'
expectations of 43.0, a Reuters poll found.
    The yield on benchmark 10-year Treasury notes
fell 4.9 basis points to 1.634% and the breakeven rate on
five-year U.S. Treasury Inflation-Protected Securities (TIPS)
 slid to 2.59%.
    Market expectations of a further rise in inflation would
need evidence of the economy moving past full employment very,
very rapidly, said Steven Ricchiuto, U.S. chief economist at
Mizuho Securities USA LLC.
    "We've probably already reached the peak level of economic
activity, and that probably happened in March and April,"
Ricchiuto said. 
    If you don't "reach full peak employment very, very quickly,
then you have to rethink, reset your overall expectations on the
market," he said.
    The number of Americans filing new claims for unemployment
benefits dropped further below 500,000 last week, suggesting job
growth picked up this month. But companies are desperate for
workers, which could affect how quickly the economy grows.
    Initial claims for state unemployment benefits totaled a
seasonally adjusted 444,000 for the week ended May 15, compared
to 478,000 in the prior week, the Labor Department said on
Thursday. That was the lowest since mid-March 2020.
    Bond yields jumped on Wednesday after minutes of the Federal
Reserve's meeting in April mentioned a number of policymakers
found "at some point" in the future discussion of adjusting the
pace of bond purchases might be appropriate.
    The market's reaction to "taper talk" was seen as knee-jerk
but conjured memories of a volatile reaction to Fed efforts in
2013 to ease its accommodative stance at the time. 
    The yield on the 30-year Treasury bond was down
5.1 basis points to 2.3357%.
    The 10-year TIPS breakeven rate was last at
2.445%, indicating the market sees inflation averaging just
under 2.5% a year for the next decade.
    
  May 20 Thursday 1:09PM New York / 1709 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0075       0.0076    -0.007
 Six-month bills               0.02         0.0203    -0.005
 Two-year note                 99-242/256   0.1532    -0.006
 Three-year note               99-196/256   0.329     -0.024
 Five-year note                99-170/256   0.8195    -0.043
 Seven-year note               99-200/256   1.283     -0.050
 10-year note                  99-236/256   1.6335    -0.049
 20-year bond                  100          2.25      -0.055
 30-year bond                  100-216/256  2.3357    -0.051
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 GooU.S. 2-year dollar swap      9.75        -0.25    
 spread                                               
 U.S. 3-year dollar swap        11.50         0.25    
 spread                                               
 U.S. 5-year dollar swap         8.75         1.25    
 spread                                               
 U.S. 10-year dollar swap       -3.25         0.75    
 spread                                               
 U.S. 30-year dollar swap      -30.00         1.75    
 spread (Reporting by Herbert Lash; editing by Barbara Lewis, Kirsten
Donovan)
  
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