TREASURIES-U.S. yields slip as traders cool on more Fed rate hikes

    * Yield curve steepens from flattest levels in over a decade
    * Worries about Brexit, U.S.-China trade spur safe-haven
    * ADP U.S. jobs data fall short, U.S. trade gap widest in 10
    * Fed's Bostic sees neutral rate "within shouting distance"

 (Updates yield levels after Wall Street close)
    By Richard Leong
    NEW YORK, Dec 6 (Reuters) - U.S. Treasury yields fell on
Thursday, with 10-year yields hitting three-month lows, as
traders scaled back expectations on the number of rate hikes the
Federal Reserve would implement amid weakening economic data and
market volatility.
    Uncertainties over negotiations for Britain to exit the
European Union and worries over escalating trade tensions
between China and United States following the arrest of a top
executive of Chinese technology giant Huawei Technologies Co
also stoked safe-haven demand for U.S. government debt, analysts
and traders said.
    The backtracking in traders' rate-hike outlook kindled
appetite for short-dated Treasuries, tilting the yield curve
slightly away from its flattest levels in over a decade.
    Earlier this week, shorter-dated yields rose above medium
yields for the first time since early 2008, stoking speculation
about a U.S. recession in the coming months. 
    "The yield curve is pricing out rate hikes. There are just
worries about the global economy," said Karl Haeling, vice
president at Landesbank Baden-Wurttemberg in New York.
    Interest rate futures implied traders now see no more than
one rate increase from the Fed in 2019, compared with
expectations for possibly two rate hikes a month earlier,
according to CME Group's FedWatch program.
    Fed policymakers are still expected to increase key
short-term lending rates by a quarter point to a target range of
2.25-2.50 percent at their Dec. 18-19 meeting.
    Atlanta Fed President Raphael Bostic said the Fed is within
"shouting distance" of a neutral rate where borrowing costs are
supportive of growth without stoking inflation.
    At 4 p.m. (2100 GMT), the yield on two-year Treasury notes
 fell 5 basis points to 2.758 percent after touching
2.693 percent, its lowest level since Sept. 10.
    The benchmark 10-year yield hit a three-month
trough of 2.826 percent. It was last down nearly 4 basis points
at 2.886 percent.
    The spread between two-year and 10-year yields
 had widened as much as 2 basis points before
finishing 1 basis point wider at 12.85 basis points. On Tuesday,
it contracted to 9 basis points, its tightest in over a decade.
    Treasury yields bounced from session lows as Wall Street
pared earlier losses with the Dow coming back from a 785-point
    U.S. financial markets were closed on Wednesday for a
national day of mourning for former U.S. President George H.W.
Bush, who died last Friday.
    Thursday's domestic economic data did not bolster traders'
confidence about the economy.
    The U.S. trade deficit surged to a 10-year high in October
as soybean exports fell further and imports of consumer goods
rose to a record high.
    Payroll processor ADP said domestic private payrolls grew by
179,000 last month, fewer than the 195,000 forecast of analysts
polled by Reuters.
December 6 Thursday 4:01PM EDT/ 2101 GMT
 US T BONDS MAR9               142-29/32    0-24/32    
 10YR TNotes MAR9              120-88/256   0-84/256   
                               Price        Current    Net
                                            Yield %    Change
 Three-month bills             2.3625       2.4095     -0.014
 Six-month bills               2.4825       2.5488     -0.021
 Two-year note                 99-253/256   2.7559     -0.055
 Three-year note               100-78/256   2.766      -0.053
 Five-year note                100-150/256  2.7482     -0.051
 Seven-year note               100-104/256  2.8104     -0.045
 10-year note                  102-12/256   2.8865     -0.037
 30-year bond                  104-68/256   3.1537     -0.023
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
 U.S. 2-year dollar swap        17.00         1.00     
 U.S. 3-year dollar swap        14.00         0.00     
 U.S. 5-year dollar swap        13.50         0.25     
 U.S. 10-year dollar swap        7.00         1.00     
 U.S. 30-year dollar swap      -11.50         1.25     

 (Reporting by Richard Leong; Editing by Bernadette Baum, Susan
Thomas and Jonathan Oatis)

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