TREASURIES-U.S. yields fall with Europe, curve flattest in 10 years

* Treasury yields fell Tuesday morning on ECB bond report

* 5-year, 30-year spread hits lowest point in a decade

By Gertrude Chavez-Dreyfuss and Kate Duguid

NEW YORK, Jan 16 (Reuters) - U.S. long-dated Treasury yields

fell on Tuesday morning along with those of European bonds,

after a Reuters report said the European Central Bank was not

quite ready to end its bond-buying scheme at next week's

meeting.

"There's a pullback in (German) bund yields and we're seeing

a little bit of that spill over to the U.S.," said Subadra

Rajappa, head of U.S. rates strategy, at Societe Generale (Swiss: 519928.SW - news) in New (KOSDAQ: 160550.KQ - news)

York.

Long-dated U.S. yields earlier dropped to one-week lows,

while those on two-year notes rose after hitting a

more than nine-year high last Friday. At 2:55 p.m. (1955 GMT),

benchmark yields were below Friday's close despite

recouping some losses in midday trading.

The ECB is unlikely to ditch a pledge to keep buying bonds

at next week's meeting as policymakers need more time to assess

the outlook for the economy and the euro, Reuters reported on

Tuesday.

Tuesday's intra-day yield moves may not be particularly

meaningful. "It's overall a pretty low volatility day," said

Thomas Simons, money market economist at Jefferies & Co in New

York. "It's just that we're off (this morning's) highs," Simons

continued.

Also on Tuesday, the spread between five- and 30-year

maturities hit its lowest point in over 10 years,

sinking to 47.6 basis points. With (Other OTC: WWTH - news) this move, the U.S. yield

curve resumed its flattening trend after steepening most of last

week.

The spread between yields of short- and long-dated

maturities has compressed as investors price in the expectation

that the Federal Reserve will continue to raise U.S. overnight

interest rates, even as long-term inflation expectations have

remained low.

The rate futures market has priced in a more than 72 percent

chance the Fed will raise interest rates at the March meeting,

according to the CME's FedWatch.

This week is light on data releases, so it's likely that the

market will be focused on Washington. As the continuing

resolution expires Friday, investors will be watching Congress

to see if it can put together a funding bill in time to avoid a

government shutdown.

The market will also be watching Fed speeches this week. Of

particular interest will be remarks on Friday from Vice Chair

Randal Quarles, who has yet to make clear where he falls on the

dove-hawk spectrum.

In late afternoon trading, the benchmark 10-year Treasury

yield slipped to 2.544 percent at 3:21 p.m. (2021

GMT), from 2.552 percent at Friday's close.

U.S. two-year yields, meanwhile, were at 2.018

percent, above 2.002 percent on Friday.

January 16 Tuesday 3:24PM New York / 2024 GMT

Price

US T BONDS MAR8 150-27/32 0-11/32

10YR TNotes MAR8 122-248/256 0-8/256

Price Current Net

Yield % Change

(bps)

Three-month bills 1.4025 1.4267 -0.018

Six-month bills 1.565 1.599 -0.003

Two-year note 99-186/256 2.0183 0.016

Three-year note 99-164/256 2.1245 0.009

Five-year note 98-240/256 2.3534 0.005

Seven-year note 98-144/256 2.4762 -0.005

10-year note 97-120/256 2.5426 -0.009

30-year bond 98-96/256 2.8309 -0.022

DOLLAR SWAP SPREADS

Last (bps) Net (LSE: 0LN0.L - news)

Change

(bps)

U.S. 2-year dollar swap 19.75 ******

spread

U.S. 3-year dollar swap 19.25 ******

spread

U.S. 5-year dollar swap 5.25 ******

spread

U.S. 10-year dollar swap 0.25 ******

spread

U.S. 30-year dollar swap -18.25 1.50

spread

(Reporting by Gertrude Chavez-Dreyfuss and Kate Duguid; Editing

by David Gregorio and Cynthia Osterman)