(Adds three-year auction results, quotes, updates prices) By Karen Brettell NEW YORK, Feb 9 (Reuters) - Benchmark U.S. Treasury yields made up earlier declines on Tuesday as investors prepared for the U.S. Treasury Department to sell new long-dated debt, but they held below 11-month highs reached on Monday. Benchmark 10-year yields jumped to their highest since March and 30-year bond yields rose above 2% for the first time since February on Monday as investors prepared for the prospect of faster U.S. growth and inflation, and the new supply. But they fell back on Tuesday as buyers stepped in and the 10-year yields have so far fallen short of the 1.25% level, which is seen as a near-term technical target. “Everything bearish for bonds is currently playing out and the momentum in and of itself seems to be fading,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. Some of Tuesday"s fall in yields may be in anticipation of strong buying at the auctions, he said. “I think part of what we’re seeing is some dip buying interest, but more importantly concern that the refunding auctions will actually lead to more material dip buying,” Lyngen said. The U.S. Treasury Department sold $58 billion in three-year notes on Tuesday to strong demand. The notes sold at a high yield of 0.196%, just below where they had traded before the auction. The main test this week will be how much demand there is for the longer-dated debt sales, including $41 billion in 10-year notes on Wednesday and $27 billion in 30-year bonds on Thursday. Ten-year yields were little changed on the day at 1.164%, holding below the 1.200% level reached on Monday. Thirty-year yields were 1.954%, after rising to 2.006% on Monday. Lou Brien, market strategist at DRW Trading in Chicago notes that the 1.20% level is around where the 10-year notes traded when the Federal Reserve last March cut rates to zero and announced new quantitative easing. This is unusual because yields in the past have risen when QE was announced, on expectations for higher inflation. Inflation expectations have jumped to the highest since 2014 with investors pricing in average annual inflation of 2.21% for the next 10 years < US10YTIP=RR>, but that expectation hasn’t yet been priced into nominal Treasury yields. “The interesting thing this time is that the yields have not gone up,” Brien said. Breaking the 1.20% level will be key to whether any move to the upside gains momentum, he added. A potential catalyst for such a move could be when there is more clarity on U.S. fiscal stimulus, as President Joe Biden and his Democratic allies ready a $1.9 trillion COVID-19 relief package. Inflation data for January on Wednesday will also be closely evaluated for signs of rising price pressures, after a 0.4% increase in December. The closely watched yield curve between two-year and 10-year notes flattened to 104 basis points, after reaching 109 basis points on Monday, the widest yield gap since April 2017. Two-year yields have plumbed record lows even as long-dated yields rise, held down by expectations that the Fed won’t raise rates for several years. Two-year yields were last 0.119%, after falling to 0.105% on Monday. February 9 Tuesday 3:09PM New York / 2009 GMT Price Current Net Yield % Change (bps) Three-month bills 0.04 0.0406 0.003 Six-month bills 0.0525 0.0532 0.002 Two-year note 100-3/256 0.1191 0.008 Three-year note 99-208/256 0.1892 0.000 Five-year note 99-126/256 0.4785 0.004 Seven-year note 99-122/256 0.8274 0.003 10-year note 97-88/256 1.1637 0.004 20-year bond 93-84/256 1.7768 0.012 30-year bond 92-152/256 1.9544 0.010 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.50 -0.50 spread U.S. 3-year dollar swap 9.75 0.00 spread U.S. 5-year dollar swap 11.00 -1.00 spread U.S. 10-year dollar swap 6.75 -0.75 spread U.S. 30-year dollar swap -21.00 -0.50 spread (Editing by Barbara Lewis and Chizu Nomiyama)