TREASURIES-Yields rise as Fed policy stays in focus

    (Corrects day of BOJ meeting in third paragraph)
    By Karen Brettell
       NEW YORK, Jan 20 (Reuters) - U.S. Treasury yields rose
on Friday as investors considered whether the Federal Reserve is
likely to keep raising rates as far as it has indicated, and as
investors bet that a recent bond rally was overdone in the
short-term.
    U.S. bond yields dropped to four-month lows on Thursday on
expectations that the U.S. central bank will be forced to pivot
to a more dovish policy if the U.S. economy enters a recession,
as many fear.
    Weaker than expected data has focused investor attention on
the U.S. economy, while the Bank of Japan's decision on
Wednesday not to lift a cap on its bond yields removed some
selling pressure on U.S. government debt.
    The Federal Reserve is expected to raise ratesto o by 25
basis pints at the conclusion of its two-day meeting on Feb. 1,
and investors will be keen for any new signals on what is likely
at the U.S. central bank's March meeting, and beyond.
    "The expectation or question about the meeting is how they
characterize a slower pace," said Jim Vogel, an interest rate
strategist at FHN Financial in Memphis, Tennessee, noting that
the Fed spent more time preparing the market for its shift to 50
basis point hikes from 75 basis point ones, than it has for its
subsequent downgrade to 25 basis point increases.
    Fed funds futures traders are pricing for the benchmark rate
to peak at 4.91% in June, up from 4.33% now, even as Fed
officials have flagged the rate going above 5%.
    "Right now the assumption is they go 25 (basis points) in
March and then they're done, and so if the FOMC doesn't think
they are going to be done in March you would anticipate that
either the statement or the press conference will inform us,"
Vogel said.
    Philadelphia Fed President Patrick Harker on Friday repeated
his view that it's time to move to a slower pace of rate rises.
    Fed Vice Chair Lael Brainard said on Thursday that the
central bank is "probing" for the right level of interest rates
to control inflation without tanking employment, but added that
the chances of a "soft landing" for the U.S. economy appear to
be growing.
    In December, Fed policymakers as a group signaled the policy
rate will need to rise to at least 5.1%.
    Benchmark 10-year yields were last at 3.457%,
after reaching 3.321% on Thursday, the lowest since Sept. 13 and
just above its 200-day moving average. The yields have fallen
from 3.905% at year-end, and from a 15-year high of 4.338% on
Oct. 21.
    Two-year yields were last 4.1754%, after falling
to 4.041% on Thursday, the lowest since Oct. 4.
    Key parts of the yield curve are deeply inverted, reflecting
concerns about an imminent recession. The two-year, 10-year
curve was last at minus 72 basis points, while
the spread between three-month and 10-year yields
was at minus 121 basis points.
      January 20 Friday 9:42AM New York / 1442 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             4.555        4.6697    0.004
 Six-month bills               4.6625       4.8388    0.014
 Two-year note                 100-35/256   4.1745    0.056
 Three-year note               100-32/256   3.8299    0.064
 Five-year note                101-112/256  3.5545    0.070
 Seven-year note               102-68/256   3.5039    0.068
 10-year note                  105-132/256  3.4567    0.058
 20-year bond                  103-132/256  3.7467    0.054
 30-year bond                  107          3.6142    0.046

 A  DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        25.50        -1.00
 spread
 U.S. 3-year dollar swap        13.50        -0.75
 spread
 U.S. 5-year dollar swap         4.00        -0.50
 spread
 U.S. 10-year dollar swap       -3.75         0.25
 spread
 U.S. 30-year dollar swap      -40.50        -0.25
 spread

 (Editing by Nick Zieminski)