* U.S. breakeven rate hits highest since July 2014 * TD Securities says yields could go beyond fair value * U.S. 10-year overnight rate in repo market still negative (Adds new comments, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, March 8 (Reuters) - U.S. Treasury yields advanced on Monday, with the belly of the curve leading the way, as investors continued to price in higher inflation and more upbeat prospects for the U.S. economy as it emerges from the coronavirus pandemic. The U.S. 5-year and 7-year note yields were up between five to six basis points, while that of the benchmark 10-year note hit nearly a 13-month high. The break-even inflation rate on 10-year Treasury Inflation Protected Securities, a gauge of expected annual inflation over the next 10 years, climbed to 2.26% on Monday, the highest level since July 2014, from 2.235% last Friday. The breakeven rate was last at 2.22%. The U.S. yield curve was flatter on Monday, with the spread between 2-year and 10-year notes at 143.1 basis points , after hitting its steepest level since September 2015 on Friday. "If the sell-off in rates continues, we may see a repeat of the 2013 experience, pushing yields beyond fair value," TD Securities said in a research note. "Even though the 10-year (yield) should stall around 2% from a fundamental standpoint given the lower terminal rate, supply and bond outflows could exaggerate the move." Investors are also focused on this week"s $120 billion auction of 3-, 10-, and 30-year Treasuries, especially after last week"s soft auction and a horrible 7-year note sale that saw a spike in yields. "We will all watch the 10-year auction on March 10. That"s going to be as important as the CPI data," said Thomas Costerg, senior economist at Pictet Wealth in Geneva. "I am a bit nervous because the Fed left for its blackout period without offering markets any strong signals. Given that we are in a bit of vacuum until March 17, we could see markets test the Fed a bit," he added. In afternoon trading, the U.S. benchmark 10-year yield rose to 1.590% from 1.554% late on Friday. Since late January, 10-year yields have risen by more than 60 basis points. Speculators piled into short positions across the Treasury curve last week, adding $45 billion in 10-year net short positions, the largest increase on record, Penglu Zhao, quantitative strategist at TD Securities, said in a note, citing the Commodity Futures Trading Commission data released last Friday. Deutsche Bank, in a note, said U.S. 10-year Treasury returns at the end of February had the worst start to the year in at least 190 years. If yields stay where they are for the rest of March, the bank estimates that the first quarter will be the second worst in that period, only behind 1980. U.S. 30-year yields rose to 2.3% from Friday"s 2.288%. U.S. 5-year note yields were up at 0.851%, while that of the 7-year note climbed to 1.28%. In the repurchase agreement market, the cost to borrow U.S. 10-year Treasuries averaged -2.91% on Monday, one dealer said, with demand for the benchmark note still overwhelming supply and investors further pricing further yield rises. It has gone negative for six straight sessions. The negative repo rate means some market participants were willing to pay interest on money lent to borrow the 10-year note. March 8 Monday 3:13PM New York / 2013 GMT Price Current Net Yield % Change (bps) Three-month bills 0.04 0.0406 0.003 Six-month bills 0.0625 0.0634 0.000 Two-year note 99-237/256 0.1626 0.022 Three-year note 99-96/256 0.3389 0.032 Five-year note 98-74/256 0.8519 0.067 Seven-year note 98-248/256 1.28 0.057 10-year note 95-180/256 1.5942 0.040 20-year bond 94-196/256 2.2007 0.023 30-year bond 90-180/256 2.3067 0.019 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.50 -1.00 spread U.S. 3-year dollar swap 10.50 -0.75 spread U.S. 5-year dollar swap 7.75 -2.00 spread U.S. 10-year dollar swap 3.00 -1.50 spread U.S. 30-year dollar swap -27.50 -1.50 spread (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Sujata Rao-Coverley in London; Editing by Jonathan Oatis and Paul Simao)