* Ten-year yield hits 3-month low, investors rush to cover shorts * Ten-year yield down as much as 13 bps this week, steepest fall in 1 yr * Another new record for Fed"s reverse repo facility (Updates with market activity, analyst comment, Fed facility details) By Ross Kerber and Tom Westbrook BOSTON / SINGAPORE, June 11 (Reuters) - Benchmark 10-year U.S. Treasury yields were close to their biggest weekly decline in a year on Friday as the market deemed a spike in inflation to be transitory, squeezing bears out of short positions. The 10-year yield, which falls when prices rise, was nearly unchanged at 1.4603% on Friday afternoon after touching as low as 1.428% earlier in the session, its lowest since early March. At that point, the yield had fallen roughly 13 basis points for the week, the steepest weekly drop since last June. Traders said short-covering was driving the bond rally, in a market that remains the recipient of enormous Federal Reserve support, after U.S. inflation data on Thursday was dismissed as insufficiently scary to prompt early tapering of stimulus. TD Securities global head of rates strategy Priya Misra said the pattern was triggered once the benchmark yield fell below 1.5%, the low end of its range in recent weeks, on June 9. That would have prompted an exit from many "steepener" trades and meant investors were buying longer-term debt since then, she said. "I see this more as flow-driven trading rather than fundamentals," she said of Friday"s patterns. Kim Rupert, senior economist for Action Economics, said the move back up in yields on Friday also reflected investment strategies as traders positioned ahead of comments due from U.S. Federal Reserve officials next week. "Today was just a little unwinding, people taking chips off the table," she said. The Fed accepted all $547.8 billion in bids submitted into its reverse repurchase facility on Friday, a fifth consecutive record amount. Money fund managers have embraced the facility as a place to park cash, putting pressure on short-term interest rates. The one-month Treasury bill was at 0.0076%, just above the 0% level it last touched on May 28. A reopening U.S. economy meant year-on-year consumer prices did rise 5%, the biggest jump in nearly 13 years, data on Thursday showed. But big contributions from price rises for airline tickets and used cars were seen as unsustainable and in keeping with the Fed"s forecasts for a temporary spike. Short positions in Treasuries had hit their highest since 2018, according to JP Morgan positioning data last week. Their unwinding has flattened the yield curve to push the gap between policy-sensitive 2-year notes and 10-year notes as low as 128 basis points early in Friday"s trading, its narrowest in three months. It was last at 131 basis points, two basis points higher than Thursday"s close. The gap between 5-year notes and 30-year bonds was at 140 basis points, about a basis point lower than Thursday"s close. At the long end of the curve, the 30-year yield was at 2.1462% and touched as low as 2.122%, the lowest since late February. June 11 Friday 2:16 PM New York / 1816 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0275 0.0279 0.003 Six-month bills 0.0375 0.038 -0.003 Two-year note 99-243/256 0.1509 0.000 Three-year note 99-210/256 0.3102 0.008 Five-year note 100-6/256 0.7452 0.013 Seven-year note 100-168/256 1.1516 0.010 10-year note 101-132/256 1.4603 0.001 20-year bond 102-236/256 2.0702 -0.004 30-year bond 105-8/256 2.1462 -0.008 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.25 0.50 spread U.S. 3-year dollar swap 9.75 0.75 spread U.S. 5-year dollar swap 7.25 0.25 spread U.S. 10-year dollar swap -2.75 0.00 spread U.S. 30-year dollar swap -30.75 -0.50 spread (Reporting by Ross Kerber in Boston and by Tom Westbrook in Singapore; Editing by Ana Nicolaci da Costa and Nick Zieminski) Our Standards: The Thomson Reuters Trust Principles.