US yields fall on strong demand, positive trade, inflation news

• Demand allays some fears foreign investors avoiding US market
• 10-year auction showed persistent demand
• US to auction $22 billion in 30-year bonds on Thurs

June 11 (Reuters) - Yields on U.S. Treasuries declined for a third straight day on Wednesday as positive news on inflation and U.S.-China trade relations boosted investor demand.

An auction of 10-year Treasuries also showed healthy appetite for longer-dated U.S. securities, allaying some fears that foreign investors might be moving away from the market. This could be tested again on Thursday at a $22 billion auction of 30-year bonds, however.

The developments showed somewhat higher investor spirits despite concerns for the path of U.S. monetary policy, the American fiscal situation and the chances of a durable trade resolution with Beijing, analysts said.

The 10-year notes sold at a high yield of 4.421%, about half a basis point lower than before the auction, the bid-to-cover ratio, a measure of demand, was 2.52, near recent trends.

"I think you could probably have a sigh of relief that the 10-year auction didn't tail at all but tomorrow is going to be the bigger test" for demand, said Lawrence Gillum, fixed-income strategist for LPL Financial, referring to worries over appetite for global long-dated government debt securities.

"The 30-year auction is the big one," he added.

Earlier in the day, the Labor Department reported that the closely watched 12-month increase in "core" consumer prices, which excludes the volatile food and fuel categories, had held steady at 2.8% in May, a tenth of a point lower than a consensus forecast among economists polled by Reuters, easing some pressure on the Federal Reserve to maintain higher interest rates for longer.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB was last down 5.4 basis points to 4.42%. The yield on the 30-year bond US30YT=TWEB fell 2.6 basis points to 4.913%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 46.7 basis points.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, fell 6.1 basis points to 3.951%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.310% after closing at 2.334% on June 10.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.284%, indicating the market sees inflation averaging about 2.3% a year for the next decade.