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U.S. housing starts fall, Philly Fed index declines

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U.S. yield curve reduced inversion

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U.S. rate futures price in between one to two cuts this

year

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Focus on $21 billion U.S. five-year TIPS auction

(Recasts with market rise; adds analyst comment, Philly Fed

data, more details about reports, bullets, byline; updates

prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, June 20 (Reuters) - U.S. Treasury yields rose

across the board on Thursday as risk appetite rose with equities

and investors continued to rebalance their positions after last

week's sharp decline on further evidence the world's largest

economy is finally slowing down.

Investors are also looking ahead to next week's auction

of about $183 billion in U.S. two-, five- and seven-year

Treasury notes. Investors tend to sell Treasuries ahead of

auctions to push up the yield before buying them back at a lower

price, a practice called concession.

U.S. yields briefly came off their highs after

Thursday's generally

soft economic reports

with the contraction in housing starts, a decline in the

Philadelphia Federal Reserve business conditions index, and an

increase in continuing jobless claims.

"Overall the market is trying to find its way," said Jim

Barnes, director of fixed income at Bryn Mawr Trust in Berwyn,

Pennsylvania.

"I wouldn't say that the fixed income market moved

notably on the economic data this morning. It was just taking a

breather more or less from the downward movement we have seen

recently."

In late morning trading, the benchmark U.S. 10-year

yield rose 6 basis points (bps) to 4.276%.

The U.S. 30-year yield gained 5.9 bps at 4.412%

.

The two-year yield declined 5 bps to 4.743%.

U.S. yields also rose after the S&P 500 hit yet

another record peak.

"The S&P hitting record highs could be a contributing

factor to the rise in yields," said Barnes.

"At the margin, you had a little bit of a sell-off in

the Treasury market and you probably could have had some

repositioning as the equity market has not only been able to

hold its gains, but was able to add to them this year."

The U.S. yield curve became less inverted. The inversion

between U.S. two- and 10-year yields, which is typically a

precursor to recession, was at minus 46.9 bps,

compared with minus 49.3 bps late on Tuesday.

The curve is in a "bear steepener" phase, in which

long-term rates are rising more steeply than shorter-dated ones.

This often happens when the market thinks inflation could pick

up, delaying the start of the Fed's easing cycle.

Following Thursday's economic data, fed funds futures

slightly pared the chances of easing in September to 64%, from

about 67% late on Tuesday, according to LSEG's calculations. The

market is also pricing one to two rate cuts of 25 bps each this

year.

Minneapolis Fed President Neel Kashkari said on Thursday

it would

take a year or two

to get inflation back to 2% as wage growth might still be a

bit too high, fueling concerns interest rates could remain

elevated for some time.

Later on Thursday, the U.S. government will sell $21

billion of five-year Treasury Inflation-Protected Securities

(TIPS). U.S. five-year TIPS yields have declined more than 20

basis points since hitting one-month peaks in late May. The

yield was last up 3.6 bps at 2.096%.