TREASURIES-Yields rise as traders weigh Iran peace prospects, Fed leadership transition

* Traders monitor potential US-Iran peace deal

* Policy meeting under new Fed Chair Kevin Warsh may bring changes to communication style

* Markets expect interest rates to remain on hold

* Focus will be on Warsh's press conference, rate-hike signals

By Karen Brettell

NEW YORK, June 12 (Reuters) - U.S. Treasury yields rose from one-week lows on Friday as traders focused on the prospect of a peace deal with Iran and looked ahead to next week's Federal Reserve policy meeting, which will be first under the leadership of Kevin Warsh.

Yields fell on Thursday after U.S. President Donald Trump said he was calling off new strikes on Iran because a deal was now ready. A memorandum between the U.S. and Iran to halt the war in the Gulf could be signed as soon as Sunday, a Western source told Reuters on Friday, with Geneva emerging as the likeliest venue.

The rally on Thursday "was purely from a peace optimism standpoint," said Will Compernolle, a macro strategist at FHN Financial, noting that such rallies have tended to reverse when traders realized a deal was not imminent. The 2-year note yield, which typically moves in step with Fed interest rate expectations, rose 2.6 basis points to 4.096%.

The yield on benchmark U.S. 10-year notes rose 3 basis points to 4.495%, from 4.465% late on Thursday.

The yield curve between 2- and 10-year notes was little changed on the day at 40 basis points. Meanwhile, traders are weighing what changes Warsh, who replaced Jerome Powell as Fed chief about a month ago, may make at the June 16-17 meeting, with some speculating he could decline to submit his own rate projections in the "dot-plot" chart that will be released after it concludes or alter other communication practices, given his preference for less forward guidance. The central bank's policy-setting Federal Open Market Committee is widely expected to keep rates on hold and may drop the easing bias from its statement, given that the labor market has improved and inflation remains well above the central bank's 2% target.

Traders also will be looking for any signals on whether a rate hike is likely as fed funds futures traders price in a 56% chance of an increase by December.

Markets will focus on how Warsh communicates at the press conference, said Compernolle, noting that "Powell was very transparent ... He was saying everything he felt he could commit to, but he also spoke for the median FOMC participant."

"If (Warsh is) really mysterious under the guise of not wanting to commit to forward guidance I think the market is not going to be sure - is this Warsh's point of view, or is this Warsh speaking on behalf of the FOMC?" (Reporting by Karen Brettell; Editing by Paul Simao)