TREASURIES-U.S. yields flat to modestly lower ahead of Fed meeting, Treasury supply

       By Gertrude Chavez-Dreyfuss
    NEW YORK, July 26 (Reuters) - U.S. Treasury yields were
little changed to slightly lower in choppy trading on Monday,
recovering a bit from sharper falls in the Asian session and
tracking shifts in risk appetite, with investors cautious as
well ahead of the Federal Reserve's monetary policy meeting this
week.
    Earlier in the session, U.S. yields dropped following steep
losses in Chinese stocks on worries over tighter regulations in
the world's second largest economy.
    The yield curve, which can be a gauge of risk sentiment, was
little changed at 107.40 basis points, as measured by the spread
between 2-year and 10-year yields.
    Kim Rupert, managing director for fixed income at Action
Economics, said "risk aversion has put a solid bid in bonds
during Asian hours," although that has been partly unwound in
the New York session.
    "Weighing heavily was China's announcement of various
restrictions on tech shares. The spread of the Delta variant and
supply chain bottlenecks are also continuing to add to global
growth risks," she added.
    Chinese blue chips shed 3.2% in the biggest daily
decline since March, as the education and property sectors were
battered due to concerns of over tighter government rules.

    In midmorning trading, the U.S. 10-year Treasury yield
dipped to 1.277% from 1.285% late on Friday.
    U.S. 30-year yields were flat at 1.926% from
Friday's 1.924%.
    The yield on 10-year Treasury Inflation-Protected Securities
(TIPS) plunged to a record low of -1.12%, as
investors bought the instrument as the yield on nominal 10-year
Treasuries continue to trade below the expected inflation rate.
U.S. 10-year TIPS yield was last at -1.086%.
    The U.S. 10-year inflation breakeven, the bond market's
gauge of investors' price outlook over the next 10 years, was
flat at 2.361% from Friday's 2.44%. In mid-May, 10-year
breakeven inflation hit 2.564%, the highest since March 2013.
    Investors are also focused on this week's Fed meeting. The
U.S. central bank meets on Tuesday and Wednesday and, while no
change in policy is expected, market participants will look to
Fed Chairman Jerome Powell to clarify what "substantial further
progress" on employment would look like.
    Treasury supply is also in the spotlight this week. The
Treasury is selling $183 billion in notes, including Monday's
$60 billion in 2-year notes, $61 billion in 5-year notes on
Tuesday, and $62 billion in 7-year notes on Thursday.

      July 26 Monday 10:20AM New York / 1420 GMT



                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.05         0.0507    0.000
 Six-month bills               0.05         0.0507    0.000
 Two-year note                 99-218/256   0.2022    0.002
 Three-year note               99-254/256   0.3776    0.003
 Five-year note                100-194/256  0.7181    0.001
 Seven-year note               101-120/256  1.0297    -0.002
 10-year note                  103-48/256   1.2779    -0.007
 30-year bond                  110-40/256   1.9255    0.002

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap         8.25         0.25
 spread
 U.S. 3-year dollar swap        10.75         0.25
 spread
 U.S. 5-year dollar swap         8.50        -0.25
 spread
 U.S. 10-year dollar swap       -0.25         0.00
 spread
 U.S. 30-year dollar swap      -27.75        -0.50
 spread

 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
Oatis)

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