TREASURIES-Yields steady as investors position for New Year

By Matt Tracy

Dec 27 (Reuters) - The yield on the benchmark U.S. Treasury note held steady on Friday, showing little reaction in a quiet holiday-shortened week to secondary data on retailers' and wholesalers' inventories.

Retailers' inventories ticked up in November by 0.3% to $827.5 billion from $825.4 billion the previous month, U.S. Census data on Friday showed. Wholesalers' stocks declined 0.2% to $901.6 billion from $903.8 billion in October. These figures were in line with Reuters polling heading into the data.

The yield on the benchmark U.S. 10-year note ticked up 0.9 bps from late Thursday to 4.593%. It hit 4.641% on Thursday, the highest level since May 2, before moderating after a strong seven-year note auction in the afternoon.

The two-year note yield, which typically moves in step with interest rate expectations, was last down 2.3 bps from late Thursday at 4.307%. It earlier reached 4.341% in early morning trading.

The 30-year bond yield rose 1.5 basis points to 4.779% from late trading on Thursday.

Another factor in Treasury trading on Friday was a swoon in U.S. equities in morning trading, according to Jack McIntyre, portfolio manager for global fixed income at asset manager Brandywine Global Investment Management.

The Dow Jones Industrial Average Index was last down 0.82% on the day, while the S&P 500 was down 1.22%.

"It represents a potential wealth transfer effect," he said. "That could change people's outlook on the economy."

The closely watched gap between yields on two- and 10-year Treasury notes, considered a gauge of growth expectations, was at a positive 27.1 bps, barely changed from late Thursday.

Based on the Fed funds futures term structure, traders see minimal chance that the Fed will ease at its January meeting, after delivering its third quarter point cut earlier this month since the central bank became more accommodative in September.

The implied breakeven inflation rate on 10-year Treasury Inflation Protected Securities (TIPS) fell to 2.239% from 2.362% late Thursday, indicating the market sees inflation averaging just under 2.24% a year for the next decade.

According to LSEG data, traders don't see another interest rate reduction until May and see a less than 50/50 chance of another 25 basis points from there by year end.

Next week's data releases include pending home sales figures for November on Dec. 30 and the S&P Case-Shiller home price index for last month on Dec. 31. The latest initial jobless claims data will follow on Jan. 2 after the New Year's holiday. (Reporting by Matt Tracy; Editing by Aurora Ellis)