TREASURIES-U.S. yields slightly down after solid 2-year note auction, ahead of Fed

       * U.S. 2-year note auction shows solid results
    * U.S. 10-year TIPS yield hits record low
    * U.S. 10-year breakeven inflation falls
    * Fed policy meeting this week in focus

 (Adds new comment, 2-year note auction results, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 26 (Reuters) - U.S. Treasury yields slipped
in choppy trading on Monday, recovering a bit from sharper falls
in the Asian session and tracking shifts in risk appetite, with
investors cautious ahead of the Federal Reserve's monetary
policy meeting this week.
    A solid two-year note auction added to some bids in
Treasuries, analysts said.
    "There are some residual concerns about COVID, about
U.S.-China relations. And so that drove yields much lower in the
morning," said Gennadiy Goldberg, senior rates strategist at TD
Securities in New York.
    "It didn't seem to last. But volume is relatively thin in
summer markets."
    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.
    Chinese blue chips shed 3.2% in the biggest daily
decline since March, as the education and property sectors were
battered due to concerns over tighter government rules.

    Also on Monday, the U.S. Treasury auctioned $60 billion in
2-year notes, with solid results. The yield was 0.213%, compared
with the when-issued or expected rate of 0.217% at the bid
deadline, suggesting investors were willing to receive a
slightly lower yield for the note.
    The bid-to-cover ratio, another gauge of demand, was 2.47,
below both last month's 2.54 and the 2.53 average.
    "You rarely see a 2-year auction struggle for demand just
because their rates have been stable," said TD's Goldberg.
    "You tend to see the same buyers show up in the two-year
note auction. Because rates have been steady the last few
months, when one needs a two-year note, they will just buy it."
    In early afternoon trading, the U.S. 10-year Treasury yield
dipped to 1.272% from 1.285% late on Friday.
    U.S. 30-year yields were slightly lower at 1.922%
 from Friday's 1.924%.
    Post-auction, U.S. 2-year note yields were down at 0.196%
, compared with 0.2% last Friday.
    The yield on 10-year Treasury Inflation-Protected Securities
(TIPS) plunged to a record low of -1.12% on
Monday, as investors bought the instrument with the yield on
nominal 10-year Treasuries continuing to trade below the
expected inflation rate. U.S. 10-year TIPS yield was last at
    The U.S. 10-year inflation breakeven, the bond market's
gauge of investors' price outlook over the next 10 years, was
down at 2.391% 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 $61 billion in 5-year notes on Tuesday and
$62 billion in 7-year notes on Thursday.

      July 26 Monday 1:56 PM New York/1756 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.045        0.0456    -0.005
 Six-month bills               0.05         0.0507    0.000
 Two-year note                 99-221/256   0.1961    -0.004
 Three-year note               100          0.375     0.000
 Five-year note                100-200/256  0.7133    -0.004
 Seven-year note               101-132/256  1.0228    -0.009
 10-year note                  103-60/256   1.2729    -0.012
 20-year bond                  106-188/256  1.8425    -0.003
 30-year bond                  110-60/256   1.9222    -0.002

                               Last (bps)   Net
 U.S. 2-year dollar swap         8.75         0.75
 U.S. 3-year dollar swap        11.00         0.50
 U.S. 5-year dollar swap         8.75         0.00
 U.S. 10-year dollar swap        0.00         0.25
 U.S. 30-year dollar swap      -27.50        -0.25

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan

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