(Updates as of 14:13 EDT)

By Matt Tracy

WASHINGTON, March 13 (Reuters) - U.S. Treasury yields

rose further on Wednesday as traders speculated that stubborn

U.S. inflation evident in recent data may convince the Federal

Reserve to hold off cutting rates until after June, the

timeframe currently priced in by markets.

Benchmark 10-year notes yields were last up 3.1

basis points (bps) on the day at 4.187%, marking three

consecutive days of increases. Two-year yields were

little changed at 4.615%.

This follows Tuesday's report showing the consumer price

index (CPI) rising 0.4% last month, driven largely by higher

costs for gasoline and shelter. So-called core prices -

excluding food and energy prices - also gained 0.4%. Headline

prices rose 3.2% on an annual basis, while core prices gained

3.8%.

Traders in Fed funds futures reduced bets that the Fed will

cut rates by June to 66.7%, from 70% on Tuesday, according to

the CME Group's FedWatch tool.

No Fed policymakers are scheduled to speak this week ahead

of the central bank's March 19-20 meeting.

"This has been the dynamic since December - the battle

between market expectations of what the Fed is going to do and

the Fed's expectations of themselves," said Jack McIntyre,

portfolio manager for global fixed income at Brandywine Global.

The inversion in the yield curve between two-year and

10-year notes narrowed to minus 43.4 basis points

from minus 44 basis points on Tuesday.

The market is closely watching new data for the path of U.S.

economic growth, which in turn informs the central bank's plans

for rate cuts. Tuesday's CPI and previous reports had raised

concerns that inflation was heating back up.

"The timing and pace (of inflation) is what's a little

frustrating but I still think things are moving in the right

direction," McIntyre said.

New data from the Mortgage Bankers Association on Wednesday

showed mortgage applications increased 7.1% for the week ending

March 8 from a week earlier. This adds to market concerns that

the Fed may hold off on rate cuts beyond previous expectations,

according to McIntyre.

The Fed is expected to hold rates steady when it meets next

week, with market focus on policymakers' updated economic and

interest rate projections.

The U.S. Treasury on Wednesday auctioned $22 billion in

30-year bonds drawing a high yield of 4.331% and a

bid-to-cover ratio of 2.47, slightly higher than the February

average of 2.40 and the 2.39 average for the last 10 auctions of

30-year bonds.

The relatively strong 30-year action followed Tuesday's

lackluster $39 billion auction of 10-year notes, which likely

contributed to the continued rise in 10-year yields, according

to Guy LeBas, chief fixed income strategist at Janney Capital

Management.

"There were some concerns about how this 30-year auction

was going to come in," said LeBas."There were a lot of question

marks around whether it prices at 4.36% or 4.33%."

The yield on existing 30-year bonds ticked down 1.2

basis points to 4.338% after the auction from 4.349% before.

The next major data points watched by traders will come on

Thursday. These include the producer price index and retail

sales for February, as well as the latest initial jobless claims

for the week ending March 9.

Traders are also following the Bank of Japan and its

upcoming meetings on March 18 and 19, according to LeBas, which

could result in the central bank raising interest rates from

their current minus 0.1% level.

"There's a decent chance of using their incoming

meetings to move from ZIRP (zero interest rate policy) to LIRP

(low interest rate policy)," LeBas said.

"Very generally, a bank or an asset manager doesn't care

if they buy a 10-year Japanese and hedge it back into dollars or

buy a 10-year dollar. So if Japan rises, that's going to pull

back U.S. yields."