TREASURIES-U.S. yields rise as stocks rally

Updates prices, adds Fed rate hike probability

NEW YORK, July 19 (Reuters) – U.S. bond yields rose on Tuesday as prices were pressured lower by upbeat sentiment toward equities, with the 10-year Treasury yield hovering near 3% throughout the session.

The S&P 500 .SPX touched its highest level since June 28 as second-quarter earnings continued to roll in.

“Pretty much since U.S. markets opened this morning it’s been a one-way ride higher in stocks and lower in bond (prices),” said Guy Le Bas, chief fixed income strategist at Janney in Philadelphia.

“Sentiment is awfully bombed out in the risk markets,” he added. “If everybody’s miserable, there’s only one thing that can happen,” he said of the uptick in risk sentiment.

Wall Street’s so-called fear gauge .VIX was near its lowest in five weeks.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 6.7 basis points at 3.227%.

Traders have priced in a near 77% probability of a 75 basis point rate hike at the end of next week’s Federal Reserve policy committee meeting. FEDWATCH

The yield on 10-year Treasury notes US10YT=RR was up 5 basis points to 3.010%. The yield on the 30-year Treasury bond US30YT=RR was up 3.6 basis points to 3.171%.

The two- and 10-year Treasury notes US2US10=RR spread, seen as an indicator of economic expectations, was at -21.9 basis points and has ended the session in the negative, or inverted, since July 5.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR was last at 2.701%, after closing at 2.659% on Monday.

The U.S. dollar five years forward inflation-linked swap USIL5YF5Y=R, seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed’s quantitative easing, was last at 2.435%.

(Reporting by Rodrigo Campos; editing by Jonathan Oatis and Mark Heinrich)

((rodrigo.campos@reuters.com; @RodrigoCampos;))