(New throughout, updates prices and yields, market activity and comments, adds 10-year auction results) By Karen Brettell and Herbert Lash NEW YORK, Jan 12 (Reuters) - U.S. Treasury yields traded lower on Tuesday as strong demand for the Treasury Department"s $38 billion sale of benchmark 10-year notes had traders covering short positions, which reversed an early rise in yields. Yields had jumped about 20 basis points in the past week on expectations that new fiscal stimulus will boost economic growth and increase Treasury supply after Democrats won control of the Senate. The notes sold at a high yield of 1.164%, almost a basis point below where they had traded before the auction. Dealers took a lower than average share of 20% of the debt, reflecting strong investor demand. Investors now are waiting to see if demand will persist on Wednesday at the sale of $24 billion in 30-year Treasury bonds. "I"m not surprised to not see a huge rally because we do still have the 30-year to get through tomorrow," said Patrick Leary, chief market strategist and senior trader at Incapital in Minneapolis. Consolidation is likely at these levels, Leary said. "Maybe we trade as low as 1.07%, 1.05% before finding a floor on the range, but then slowly move higher over the coming months." The catalyst for jump in rates were the two elections in Georgia last week, which sparked the return of a reflation trade. "The Georgia Senate run-off elections really changed the landscape for the outlook pretty significantly as there is now potentially very significant additional stimulus," said Tom Simons, money market economist at Jefferies in New York. President-elect Joe Biden said on Friday that he will deliver a plan costing "trillions" of dollars on Thursday. The proposal includes relief for state and local governments grappling with the pandemic, and new support for people who lost their jobs or cannot afford rent. Biden also called for raising the minimum wage to $15 and sending out $2,000 in direct cash payments. Earlier, the yield on benchmark 10-year notes reached 1.187%, the highest since March 20. The yield curve between two-year and 10-year notes steepened to 103.40 basis points, the widest gap since May 2017, before paring gains to trade at 99.10. Thirty-year bond yields reached 1.915%, also the highest since March 20. Five-year note yields jumped to 0.533%, the highest since March 26, as investors prepared for the prospect that the Fed could begin raising rates as soon as 2023. That would be earlier than previously expected. January 12 Tuesday 9:31 AM New York / 1431 GMT Price Current Net Yield % Change (bps) Three-month bills 0.085 0.0862 -0.005 Six-month bills 0.09 0.0913 0.000 Two-year note 99-244/256 0.1489 0.004 Three-year note 99-168/256 0.24 0.006 Five-year note 99-74/256 0.5202 0.022 Seven-year note 98-108/256 0.8589 0.028 10-year note 97-84/256 1.1632 0.029 20-year bond 94-176/256 1.6913 0.015 30-year bond 94-16/256 1.8861 0.008 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.25 0.25 spread U.S. 3-year dollar swap 6.50 -0.75 spread U.S. 5-year dollar swap 7.25 0.00 spread U.S. 10-year dollar swap 0.50 0.25 spread U.S. 30-year dollar swap -25.00 1.25 spread (Reporting by Karen Brettell and Herbert Lash; Editing by David Gregorio)