U.S. yields edge up after bad auction; risk sentiment still positive

* U.S. Q2 advance GDP lower than expected

* U.S. initial jobless claims were higher than forecast

* U.S. 10-year TIPS yield hits new record low

* U.S. 7-year note auction was worst in four months -analyst

By Gertrude Chavez-Dreyfuss

NEW YORK, July 29 (Reuters) - U.S. Treasury yields inched higher in choppy trading on Thursday, but were below their peaks for the day, as gains on Wall Street, positive Chinese news and solid European economic reports balanced weaker-than-expected U.S. data.

A soft $62 billion U.S. 7-year note auction also pushed Treasury prices lower, lifting yields.

Treasury yields initially fell after the release of softer-than-forecast U.S. economic data, but came back up.

The advance estimate for U.S. gross domestic product in the second quarter showed that the economy grew at a 6.5% annualized rate, lower than the market forecast for an 8.5% rise.

"As the initial disappointment fades from the second quarter's below expectation print, cooler heads are still seeing many reasons to be cheerful," said James Bentley, director of Financial Markets Online.

"The second quarter's 6.5% expansion rate is impressive by any yardstick and is even more laudable when you remember that it was not turbocharged by Federal stimulus in the way the first quarter's numbers were," he added.

In a separate report, U.S. initial jobless claims were at 400,000 for the latest week, higher than consensus expectations of 380,000.

U.S. stocks, however, looked past the U.S. data, with the Dow .DJI and S&P 500 .SPX hitting fresh intraday record highs earlier in the session due in part to a slate of strong corporate earnings reports. .N

Thursday's U.S. 7-year auction, meanwhile, was lackluster, with a yield of 1.05%, higher than the when-issued or expected rate at the bid deadline of 1.042%. It suggested that investors wanted a little more yield to take the note.

The bid-to-cover ratio, a gauge of demand, was 2.23, below both the 2.36 last month and what analysts said was the 2.33 average.

"Bid to cover at 2.23x reflected a preference for either 5s or 7s in this environment," said Jim Vogel, senior rates strategist, at FHN Financial, in a research note after the auction.

"Dealers are not stepping up this week, with a share of only 22.2%. It's the worst 7-year auction in four months."

In early afternoon trading, the U.S. 10-year Treasury yield was up a little at 1.265% US10YT=RR from 1.263% late on Wednesday.

U.S. 30-year yields were little changed at 1.913% US30YT=RR from Wednesday's 1.911%.

Post-auction, U.S. 7-year note yields were slightly higher at 1.024% US7YT=RR , from Wednesday's 1.02%.

The yield on 10-year Treasury Inflation-Protected Securities (TIPS) plunged to a fresh record low of -1.175% US10YTIP=RR , as investors priced in higher inflation going forward. U.S. 10-year TIPS yields were last at -1.153%.

That said, risk appetite remained buoyant globally, with Chinese shares ending higher, including a 10% bounce in tech giant Tencent, after reports regulators called banks overnight to ease concerns about the recent crackdown on sectors like tech and education, and on overseas listings.

Adding to a more positive global mood were strong European economic reports on euro zone investor sentiment and German inflation.

July 29 Thursday 1:59PM New York/1759 GMT


Current Net

Yield % Change

(bps) Three-month bills US3MT=RR 0.045


-0.005 Six-month bills US6MT=RR



0.002 Two-year note US2YT=RR

99-216/256 0.2035

-0.007 Three-year note US3YT=RR



-0.011 Five-year note US5YT=RR

99-122/256 0.7319

-0.008 Seven-year note US7YT=RR

101-128/256 1.0248

0.005 10-year note US10YT=RR

103-76/256 1.2659

0.003 20-year bond US20YT=RR

106-240/256 1.8305

0.000 30-year bond US30YT=RR

110-120/256 1.9124



Last (bps) Net



U.S. 2-year dollar swap




U.S. 3-year dollar swap




U.S. 5-year dollar swap




U.S. 10-year dollar swap




U.S. 30-year dollar swap




Reporting by Gertrude Chavez-Dreyfuss; Editing by David Gregorio

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