TREASURIES-US yields edge lower to end the week on hopes for Iran deal

WASHINGTON, May 29 (Reuters) - U.S. Treasury yields were headed lower for a fourth straight day on Friday morning, closing out a week in which reported progress in efforts to secure a truce between the United States and Iran had spurred some optimism on markets.

In a speech on Friday, Michelle Bowman, the Fed's vice chair for supervision, said it was still early to gauge the Middle East war's impact on the economy but that a prolonged energy shock could require the central bank to change its stance on monetary policy. The Fed's preferred inflation gauge last month hit its highest level in three years, according to Commerce Department data released on Thursday.

Lou Brien, market strategist at DRW Trading, said the fragile pause in hostilities since last month was easing the upward pressure on crude oil prices and inflation expectations, helping move Treasury yields lower.

"We're probably not done with high oil prices just simply because we've possibly come to an agreement. We've been here before," he said. "The price has come down and that's given the bonds a chance to take a breath."

Elsewhere on Friday, the Commerce Department reported slightly better-than-expected figures for the U.S. trade balance.

The yield on the benchmark U.S. 10-year Treasury note was last down 0.8 basis points to 4.447%. The yield on the 30-year bond fell 0.4 basis points to 4.981%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 43.1 basis points.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 1.1 basis points to 4.014%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.529% after closing at 2.559% on May 28.

The 10-year TIPS breakeven rate was last at 2.391%, indicating the market sees inflation averaging about 2.4% a year for the next decade. (Reporting by Douglas Gillison in Washington; Editing by Sharon Singleton)