Mortgage News: By Karen Brettell NEW YORK, March 26 (Reuters) - U.S. Treasury prices fell and benchmark 10-year note yields rose above 2 percent on Thursday after the government saw tepid demand for a $29 billion sale of seven-year notes, a day after a weak five-year note auction. The seven-year notes priced higher than they traded before the sale despite earlier weakness as dealers and investors prepared for the auction. The bid-to-cover ratio was the lowest since May 2009. Demand for seven-year notes has been muted in most auctions for the past year, though it is less usual for a sale of five-year notes to also go badly. "This is the 10th of the last 11 that has stopped with a similar tail. ... seven-year note auctions in general haven't been going super-well for some time now," said Thomas Simons, a money market economist at Jefferies in New York. Seven-year notes were last down 11/32 in price to yield 1.79 percent, up from 1.72 percent late on Wednesday. Benchmark 10-year notes fell 17/32 in price to yield 2.00 percent, up from 1.92 percent. Treasury yields fell after the Federal Reserve last week cut its inflation outlook and growth forecast, and many economists pushed back their expectations on when the U.S. central bank is likely to begin raising interest rates to September. But the selloff on Wednesday afternoon and Thursday still leaves yields below where they had traded before the Fed meeting. Tom Tucci, head of Treasuries trading at CIBC, said he expects the Fed to pause after any initial increase to gauge how markets respond to it. "The question is will the market allow them to do it? The labor force, they think, gives them a little bit of a window, but inflation doesn't and that's been the battle they've had for quite some time now," said New York-based Tucci. Inflation has remained stubbornly low even as the employment picture brightens. Weakening economic data in the past few weeks has also added to concerns that growth may be slowing. Gross domestic product data for the fourth quarter released on Friday will be closely watched, though it won't have information on growth in the first quarter. The next major release for the market will be next week's employment report for March. "GDP is older data at this point; next week it's employment at the end that has the focus," said Jefferies' Simons.