TREASURIES-US yields dip, in line with broad trend, after 20-year bond auction

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No resolution seen in government shutdown on Day 22nd

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Downtrend in Treasury yields remain in place

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Fed is expected to cut rates two more times this year

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US 20-year bond auction well-received overall

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 22 (Reuters) - U.S. Treasury yields slid for a third straight session in choppy trading on Wednesday, with the market range-bound and sentiment subdued, as the federal government remained shut for a 22nd consecutive day with no resolution in sight.

U.S. yields further extended their fall in early afternoon trading, specifically on the long end of the curve, after a decent $13-billion auction of 20-year bonds.

Treasuries also caught a bid after Reuters reported that the Trump administration is considering a plan

to curb an array of software-powered exports

to China, from laptops to jet engines, to retaliate against Beijing's latest round of rare earth export restrictions.

The shutdown, however, is starting to wear thin on investors, fueling discontent.

"It is causing a little bit of consternation just because there is this kind of vacuum when it comes to data, in terms of people trying to grapple with what's going on," said Neil Sutherland, portfolio manager, at Schroders in New York.

"But this is the second-longest shutdown on record at the moment and I think it probably does weigh on short-term growth. It probably continues to put more pressure on the labor market."

President Donald Trump on Tuesday rejected a request by top Democratic lawmakers to meet, until the three-week-old U.S. government shutdown ends. All but three senators in the Democratic caucus are withholding support for a Republican-led stopgap funding bill, unless Trump and enough Republican lawmakers agree to an extension of an enhanced Affordable Care Act tax credit that is due to expire on December 31.

Investors, however, looked to Friday's Consumer Price Index (CPI) report for September for clues on what inflation could look like going forward. The outcome, though, is not expected to change the Federal Reserve's mindset to reduce interest rates by a quarter of a percentage point at the end of its two-day policy meeting next week.

"Inflation is still sticky and above target, but I think the fact that the labor market has ground to a halt is definitely the predominant focus," Sutherland noted. "That's why we're going to see two cuts, regardless of you what inflation does this Friday."

SOLID SUPPORT FROM 20-YEAR AUCTION

In afternoon trading, the benchmark 10-year yield was down 1.4 basis points (bps) at 3.949%, while 30-year bond yields were 1.2 bps lower at 4.534%.

Wednesday's 20-year bond auction also lent support to the market, helping to drive yields lower. The offering was broadly well-received, clearing at

4.506%

below the expected rate at the bid deadline of 4.52% - a sign that investors were willing to absorb the debt without demanding a premium.

The bid-to-cover ratio, another gauge of demand, was 2.73, in line with the 2.74 last month but much better than the 2.60 average.

Post-auction, 20-year bond yields slipped 1.3 bps to 4.507%.

On the front end of the curve, U.S. two-year yields, which reflect interest rate expectations, edged lower by 1.3 bps to 3.442%.

"Treasury yields have been trending lower overall ... and this has more to do with the economic shutdown because with the shutdown going on, the economic data that we've seen so far has been reflective of a softer economy," said Jim Barnes, director of fixed income at Bryn Mawr Trust, in Berwyn, Pennsylvania.

That should support an interest rate cut by the Fed this month.

The Fed is expected to reduce rates two more times this year, with a quarter-percentage-point cut baked in for the October 28-29 meeting, according to LSEG calculations using rate futures. For 2026, the Fed funds futures market has priced in three more 25-bps cuts.

The yield curve, meanwhile, steepened a little bit, with the spread between U.S. two-year and 10-year yields at 51.2 bps , from 50.6 bps late on Tuesday. It was a pullback from the flattening trend seen in the last few days.

The curve hit 50 bps in the previous session, the flattest since September 17, suggesting investors could have lowered their inflation expectations. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Peter Graff and Nick Zieminski)