TREASURIES-U.S. yields fall after service sector data; Fed minutes eyed

    (Updates prices, analyst comment, reverse repo data)
    By Chuck Mikolajczak
    NEW YORK, July 6 (Reuters) - U.S. Treasury yields fell on Tuesday, with the
benchmark 10-year note poised for its longest streak of daily declines in 16
months as investors look for clues on the Federal Reserve's policy path and
after data signaled the service sector expanded at a slower pace.
    A gauge of activity from the Institute for Supply Management on the U.S.
services sector, which accounts for about two-thirds of economic activity,
showed moderate growth in June, down from the record pace in May.
    The data comes on the heels of Friday's employment report, which was viewed
by many as showing an improving labor market, but not enough to signal an
economy that may be prone to overheating.
    "Seems to have been at least some reaction to the ISM services print showing
the Employment sub-index in contractionary territory for the first time since
Dec. 2020," said Zachary Griffiths, rates strategist at Wells Fargo.
    "While employment in contractionary territory could be considered
concerning, comments from the release suggest the weakness is driven more by a
lack of labor supply, not a lack of demand."
    Analysts also pointed to volatility in the oil market, where crude had run
up in price until faltering on Tuesday after OPEC producers canceled a meeting,
China's crackdown on Chinese tech stocks listed in the United States such as
Didi Global (DIDI) and position reshuffling after a long holiday weekend as
contributing to the drop in yields.
    The yield on 10-year Treasury notes was down 6.4 basis points to
1.368%. The yield hit a low of 1.352%, its lowest since Feb. 24 and was on track
for a sixth straight session of declines.
    Investors will turn their focus to Wednesday's release of minutes from the
Fed's June 15-16 meeting, when officials opened debate on how to end crisis-era
bond-buying and signaled interest rate increases were closer on the horizon than
previously thought.
    The amount of cash flowing into the Fed's overnight reverse repurchase
operation edged up to $772.5 billion from the $731.5 billion on Friday, but
short of Wednesday's record high $992 billion.
    The yield on the 30-year Treasury bond was down 4.9 basis points
to 2.001%, having earlier fallen below the 2% mark for the first time since June
21.
    The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities
(TIPS) was last at 2.491%, after closing at 2.502% on Friday, near
its highest close in a month.
    A closely watched part of the U.S. Treasury yield curve measuring the gap
between yields on two- and 10-year Treasury notes, seen as an
indicator of economic expectations, was at 114.5 basis points from 119 on
Friday.

      July 6 Tuesday 3:10PM New York / 1910 GMT
                               Price
 US T BONDS SEP1               162-5/32     1-8/32
 10YR TNotes SEP1              133-60/256   0-144/25
                                            6
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0475       0.0482    -0.003
 Six-month bills               0.05         0.0507    -0.002
 Two-year note                 99-207/256   0.2219    -0.016
 Three-year note               99-136/256   0.4106    -0.032
 Five-year note                100-80/256   0.8109    -0.051
 Seven-year note               100-204/256  1.1309    -0.065
 10-year note                  102-92/256   1.3682    -0.064
 30-year bond                  108-96/256   2.001     -0.049

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap         7.75       -23.50
 spread
 U.S. 3-year dollar swap        11.50       -44.25
 spread
 U.S. 5-year dollar swap         7.25        -0.25
 spread
 U.S. 10-year dollar swap       -2.75        -0.25
 spread
 U.S. 30-year dollar swap      -31.75        -0.50
 spread



 (Reporting by Chuck Mikolajczak; Additional reporting by Karen Pierog and Kate
Duguid; Editing by Andrea Ricci)

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