TREASURIES-U.S. yields fall, tracking European bonds

By Gertrude Chavez-Dreyfuss

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

fell on Tuesday along with those of European bonds, after a

report said the European Central Bank was not quite ready to put

away its bond-buying scheme at next week's meeting.

U.S. yields have dropped in three of the last four sessions.

"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, which move inversely to prices,

dropped to one-week lows, while those on 2-year notes rose after

hitting a more than nine-year high last Friday.

A Reuters report on Tuesday suggested the ECB was 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. Yields on European bonds fell

across the board after that report.

Also on Tuesday, the U.S. yield curve resumed its flattening

trend after steepening most of last week, with the spread

between 5- and 30-year maturities sinking to

48.70 basis points, its lowest in more than a week, according to

Reuters data.

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. Global demand for yield also has supported

longer-dated debt.

"The Fed is going to soldier on with its tightening campaign

as long as there isn't a material breakdown in the real data,"

said BMO Capital Markets in a research note.

The rate futures market has priced in a more than 70 percent

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

according to the CME's FedWatch.

In late morning trading, the benchmark 10-year Treasury

yield slipped to 2.538 percent, from 2.552 percent

late on Friday.

U.S. bond markets were closed on Monday due to the

observance of Martin Luther King Jr day.

U.S. 30-year bond yields were down at 2.840

percent from Friday's 2.853 percent.

U.S. two-year yields, meanwhile, rose to 2.018

percent, from 2.002 percent on Friday. The U.S. two-year notes

is the maturity most sensitive to rate hike expectations.

January 16 Tuesday 10:44AM New York / 1544 GMT

Price

US T BONDS MAR8 150-24/32 0-8/32

10YR TNotes MAR8 123-12/256 0-28/256

Price Current Net

Yield % Change

(bps)

Three-month bills 1.4325 1.4573 0.012

Six-month bills 1.5725 1.6067 0.005

Two-year note 99-188/256 2.0142 0.012

Three-year note 99-164/256 2.1245 0.009

Five-year note 98-250/256 2.3449 -0.003

Seven-year note 98-156/256 2.4688 -0.012

10-year note 97-128/256 2.5389 -0.013

30-year bond 98-60/256 2.838 -0.015

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 18.50 ******

spread

U.S. 5-year dollar swap 5.50 ******

spread

U.S. 10-year dollar swap -0.50 ******

spread

U.S. 30-year dollar swap -19.00 0.75

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by David

Gregorio)