TREASURIES-U.S. yields slide on growing global slowdown worries

    (Refiles to fix 2nd bullet to next year instead of last year)
    * Since 3-1/2-year peak last week, 10-year yield has fallen
25 bps
    * Fed's Williams says inflation seen declining next year
    * NY factory activity slumps in May
    * Investors back buying Treasuries as shorts decline
    * U.S. inflation breakevens moderate amid aggressive Fed
action

    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 16 (Reuters) - U.S. Treasury yields eased on
Monday, as mounting global growth concerns deepened after
unexpectedly weak economic data from China and a steep drop in
New York state's factory activity.
    Since hitting its highest in roughly 3-1/2 years early last
week, the benchmark 10-year yield has fallen about 25 basis
points, highlighting investor uncertainty in the wake of
aggressive monetary tightening from the Federal Reserve.
    Fed Chair Jerome Powell earlier signaled plans to raise
interest rates by half a percentage point at the next two policy
meetings, a scenario which New York Fed President John Williams
said makes sense.
    The Fed earlier this month raised its benchmark overnight
interest rate by 50 basis points for a second time and by the
most in a single instance - half a percentage point - in 22
years.
    Williams, a voting member at this year's Federal Open Market
Committee, also said on Monday he expects inflation to decline
next year.
    "Price action in Treasuries, commodities and currencies are
showing you the first signs that potentially worries about
future growth are beginning to be the more dominant driver,"
said Huw Roberts, director of analytics at Quant Insight in
London.
    Fears about a global slowdown were in focus on Monday after
China's poor data.
    China's economic activity contracted sharply in April as
COVID-19 lockdowns took a heavy toll on consumption, industrial
production and employment. April retail sales plunged 11.1% on
the year, almost twice the fall forecast, while industrial
output dropped 2.9% when analysts had looked for a slight
increase.
    In the United States, factory activity in New York state
slumped in May for the second time this year amid a collapse in
new orders and shipments. The New York Fed's "Empire State"
index on current business conditions tumbled 36.2 points to a
reading of -11.6 this month. A reading below zero signals a
contraction in the New York manufacturing sector.
    In afternoon trading, the yield on 10-year Treasuries
 slid 5.1 basis points to 2.882%, while the 30-year
bond yield was little changed at 3.091%.
    Given how much U.S. 10-year Treasuries have risen the last
few weeks, culminating in a 3-1/2-year peak last week, "a
powerful re-rally in rates was not totally unexpected," said
Steven Zeng, U.S. rates strategist at Deutsche Bank.
    He noted that U.S. 10-year Treasuries have cheapened based
on the bank's model, by about 15 basis points, driven in part by
"stretched positioning." After last week, however, positioning
has become "more balanced" after shorts were liquidated.
    Net shorts on U.S. 10-year note futures fell
to 85,972 contracts in the week ending May 10, from 147,537
contracts a week earlier, according to Commodity Futures Trading
Commission data. Last week's 10-year note short positioning was
the lowest since October.
    Net shorts were also trimmed in the shorter part of the U.S.
government debt curve, but to a smaller extent.
    On the front end of the curve, U.S. two-year yields, which
are sensitive to Fed rate expectations, fell 2 basis points to
2.576%.
    The yield curve has also flattened, with the spread between
U.S. two and 10-year yields narrowing to 30.6 basis points
.
    Inflation expectations have also moderated in the wake of
the Fed's steep rate hikes.
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) slipped to
3.045% from 3.076% late on Friday.
    U.S 10-year breakeven rates slid to 2.748%,
from 2.784% on Friday.

      May 16 Monday 3:07PM New York / 1907 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.005        1.0214    0.033
 Six-month bills               1.445        1.4756    0.036
 Two-year note                 99-220/256   2.5739    -0.023
 Three-year note               100-2/256    2.7472    -0.047
 Five-year note                99-172/256   2.8213    -0.065
 Seven-year note               99-240/256   2.8848    -0.062
 10-year note                  99-240/256   2.8822    -0.051
 20-year bond                  86-124/256   3.3128    -0.013
 30-year bond                  95-204/256   3.091     -0.001

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        27.50        -0.50
 spread
 U.S. 3-year dollar swap        12.25        -1.00
 spread
 U.S. 5-year dollar swap         4.00        -1.00
 spread
 U.S. 10-year dollar swap        6.50        -1.00
 spread
 U.S. 30-year dollar swap      -25.50        -1.25
 spread


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