TREASURIES-US yields ease with Trump, Fed policies in focus

(Updated at 15:00 EST)

By Karen Brettell

NEW YORK, Nov 18 (Reuters) - U.S. Treasury yields edged lower on Monday as traders digested a still-strong U.S. economy and the likely policies of a Donald Trump administration after Republicans won the presidency and control of Congress.

Yields rose heading into the Nov. 5 U.S. elections on expectations of a Republican sweep. They have only modestly added to these gains since the Republican victories as traders evaluate which policies are now likely to be enacted.

"A red sweep might have already been increasingly priced in, but also I think there's just still a lot of uncertainty about what the federal policy landscape looks like next year," said Will Compernolle, macro strategist at FHN Financial.

Lower tax rates and looser business regulations under a Trump administration could boost growth while other policies, including clamping down on illegal immigration and enacting new tariffs, may boost inflation but then also dampen U.S. economic strength, analysts said.

Traders are also unsure of whether Trump is likely to introduce broad tariffs or if they will be used as a negotiating tactic.

Meanwhile, still-strong economic data has raised doubts on whether the Federal Reserve will continue to cut interest rates, following 75 basis points of reductions since September.

Fed Chair Jerome Powell said on Thursday that ongoing economic growth, a solid job market, and inflation that remains above its 2% target mean the Fed does not need to rush to lower interest rates.

Data on Friday showing that U.S. retail sales increased slightly more than expected in October added to the view that the Fed could soon pause rate cuts.

Traders are pricing in 62% odds that the U.S. central bank will cut rates by 25 basis points at its Dec. 17-18 meeting, and a 38% chance of a pause, according to the CME Group's FedWatch Tool.

U.S. homebuilder sentiment rose to a seven-month high in November and expectations for sales in the next six months surged to the highest in about two-and-a-half years, data on Thursday showed.

Benchmark 10-year note yields were last down 1.2 basis points at 4.414%. They reached 4.505% on Friday, the highest since May 31.

Two-year yields fell 1.7 basis points to 4.284%. They hit 4.379% on Friday, the highest since July 31.

The yield curve between two-year and 10-year notes flattened half a basis point to 13 basis points.

The Treasury Department will sell $16 billion in 20-year bonds on Wednesday and $17 billion in 10-year Treasury Inflation Protected Securities on Thursday. (Reporting By Karen Brettell; editing by Jonathan Oatis and Nick Zieminski)