TREASURIES-U.S. yields slide amid uncertainty about rate hike pace

       By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 25 (Reuters) - U.S. Treasury yields fell on
Monday in choppy trading, weighed down by market uncertainty
about when the Federal Reserve would tighten monetary policy in
the face of persistently high inflation.
    The U.S. yield curve resumed steepening as investors
continued to unwind curve flattening bets, which suggested a
looming rate hike. The spread between U.S. 5-year notes and
30-year bonds widened to 91 basis points on
Monday, from 87.2 basis points late Friday.
    "There is a lot of uncertainty over the Fed and its response
to inflation and whether the market has priced in too aggressive
of a tightening path," said Kim Rupert, managing director, fixed
income, at Action Economics in San Francisco.
    Fed funds futures showed a more than 60% chance of a 25
basis-point rate tightening in June next year, which some market
participants found too aggressive since the Fed is supposed to
end tapering of asset purchases in the same month. Futures
traders also priced in two rate hikes before the end of 2022.
    In morning U.S. trading, the benchmark U.S. 10-year yield
fell nearly 3 basis points 1.6272. Last week, the
10-year yield hit 1.705%, the highest since mid-May.
    The U.S. 5-year yield, which reflects Fed tightening, was
last down 4 basis points at 1.1694%. It has been
trending upward in the last few weeks, touching its highest
since February 2020 at 1.193% last week.
    U.S. 30-year yields were also down less than a basis point
at 2.0847%.
    U.S. yields have come off early highs, with market
participants saying short-covering spurred the Treasury rally
that caused rates to dip.
    In other parts of the fixed income sector, the U.S. 5-year
inflation breakeven rate, which reflects inflation expectations
over the next five years rose to 2.93%, the highest since March
    This week, the market is bracing for $183 billion in
Treasury supply of 2,year, 5-year, and 10-year notes.

      October 25 Monday 11:18AM New York / 1518 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.055        0.0558    -0.005
 Six-month bills               0.0625       0.0634    -0.003
 Two-year note                 99-169/256   0.4271    -0.037
 Three-year note               99-170/256   0.7396    -0.045
 Five-year note                98-154/256   1.1678    -0.043
 Seven-year note               98-164/256   1.4569    -0.038
 10-year note                  96-152/256   1.6272    -0.028
 20-year bond                  95-12/256    2.0557    -0.015
 30-year bond                  98-48/256    2.0819    -0.009

                               Last (bps)   Net
 U.S. 2-year dollar swap        17.50         0.25
 U.S. 3-year dollar swap        16.25         0.50
 U.S. 5-year dollar swap         8.50         1.00
 U.S. 10-year dollar swap        2.00         1.00
 U.S. 30-year dollar swap      -21.25         0.25

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard

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