TREASURIES-U.S. yields slip as market anticipates Fed pivot

       By Herbert Lash
       NEW YORK, Jan 9 (Reuters) - Treasury yields fell on
Monday on investor speculation the Federal Reserve will soon
halt raising interest rates after data last week pointed to a
slowing U.S. economy that will also dampen the pace of
inflation.
    Data on Friday showed U.S. services activity contracted for
the first time in more than 2-1/2 years in December, which gave
both bonds and equities the green light to rally after labor
market data showed wage growth rose less than expected.
    "It's a tug of war between the markets not believing the Fed
can tighten policy and stay there for an extended period of time
versus expectations of weakening inflation and weaker economic
data allowing the Fed to ease at some point later this year,"
said Andrzej Skiba, head of the BlueBay U.S. fixed income team
at RBC Global Asset Management in New York.
    But markets may have moved too quickly and too far, as the
10-year Treasury's yield is below 3.6% and the Fed indicates the
terminal rate will be above 5%, Skiba said.
    "You could argue that quite a lot of good news on that front
has been priced in," he said.
    The yield on 10-year Treasury notes fell 0.9
basis points to 3.562%, and the two-year's yield,
which often reflects interest rate expectations, fell 2.9 basis
points at 4.231%. Yields trade inversely to their price.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on three-month bills and the
benchmark 10-year note inverted further to a
record -136.10 and was last at -106.8 basis points.
        The yield on the 30-year Treasury bond was
    up 0.7 basis points
     to
    3.699
    %.

    The Treasury will sell $90 billion of debt this week,
starting with $40 billion of three-year notes on Tuesday. On
Wednesday $32 billion of 10-year notes will be sold, and on
Thursday $18 billion of 30-year bonds.
        The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.261%.
    The 10-year TIPS breakeven rate was last at
2.244%, indicating the market sees inflation averaging about
2.2% a year for the next decade.
    The U.S. dollar 5 years forward inflation-linked swap
, seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed's
quantitative easing, was last at 2.489%.
     Jan. 9 Monday 9:49 a.m. New York / 1549 GMT
                                               Price        Current   Net
                                                            Yield %   Change
                                                                      (bps)
 Three-month bills                             4.515        4.6276    0.002
 Six-month bills                               4.6575       4.8329    0.002
 Two-year note                                 100-9/256    4.2306    -0.029
 Three-year note                               100-22/256   3.9678    -0.023
 Five-year note                                100-214/256  3.6893    -0.025
 Seven-year note                               101-124/256  3.6319    -0.018
 10-year note                                  104-156/256  3.5653    -0.006
 20-year bond                                  101-204/256  3.8692    0.008
 30-year bond                                  105-80/256   3.7041    0.012

   DOLLAR SWAP SPREADS
                                               Last (bps)   Net
                                                            Change
                                                            (bps)
 U.S. 2-year dollar swap spread                 29.00        -0.50
 U.S. 3-year dollar swap spread                 10.50         0.00
 U.S. 5-year dollar swap spread                  0.50        -0.25
 U.S. 10-year dollar swap spread                -6.75        -0.75
 U.S. 30-year dollar swap spread               -47.50        -1.25


 (Reporting by Herbert Lash; Editing by Lisa Shumaker)