(Adds auction details in paragraph 8, comment in paragraphs

3-4,9, updates prices at 2:20 p.m. ET (1820 GMT))

By Herbert Lash

NEW YORK, March 27 (Reuters) - Yields fell on Wednesday

after a robust auction of $43 billion in seven-year Treasury

notes as expectations rose that the Federal Reserve will soon

cut interest rates, ahead of inflation data that could shed

insight into such a move.

Bond investors are seeing the Fed in the same camp as other

major central banks after their slew of meetings last week, when

the Bank of England tilted more dovish and the European Central

Bank flagged a potential rate cut in June, subject to favorable

news.

"They told us they're going to be cutting. Now it's a

question of how much and when. So yeah, I think everybody

basically is expecting a cut," said Kim Rupert, managing

director of global fixed income at Action Economics in San

Francisco.

"The market had started to think that, 'Oh well, they're not

going to cut in June and they're only going to do two instead of

three.' And so we've gone back and forth. But basically, the

market is expecting at least one cut, if not two," she said.

Inflation is easing around the world, and Friday's release

of the personal consumption expenditures price index (PCE) could

fuel bets in the futures market that the Fed begins to cut rates

in June.

Markets are beginning to see that the Fed will likely put up

with higher inflation, said John Luke Tyner, portfolio manager

and fixed-income analyst at Aptus Capital Advisors in Fairhope,

Alabama.

"They need inflation to grow this economy out of the debt

burden. If it's 2.5%, if it's 2.8%, they probably can live with

it," Tyner said. "I see it pretty likely that we not abandon the

inflation target, but we just tolerate it," Tyner said.

The seven-year notes were sold at a high yield of

4.185%, with primary dealers taking just 12.86%.

"The auction was stellar. The best in several months,"

Rupert said. "It's a good time to pick up some yield."

The two-year Treasury yield, which typically

moves in step with interest rate expectations, was down 2.1

basis points at 4.577%, while the yield on 10-year Treasury

notes fell 3.8 basis points to 4.196%.

Fed funds futures show a 70.4% probability that the Fed cuts

rates in June, according to CME Group's FedWatch Tool.

Sweden's central bank held its key interest rate at 4.00% on

Wednesday, as expected, but said if inflation continued to

decline toward the 2% target there was a good chance of a series

of rate cuts starting in May.

The gap between yields on two- and 10-year notes

, seen as a recession harbinger when short-term

securities yield more than longer ones, was -38.2 basis points.

The gap has been negative, or "inverted," since July 2022.

The yield on the 30-year Treasury bond was down

4 basis points at 4.359%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.432%.

The 10-year TIPS breakeven rate was last at

2.315%, indicating the market sees inflation averaging about

2.3% a year for the next decade.