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TREASURIES-Yield curve flattens on bullish Fed, falling inflation

(Adds oil price drop, CPI data; Updates prices)

* Yield curve flattest level since Dec 2007

* Thirty-year bond yields lowest since November

* Fed speakers in focus this week

NEW YORK, June 21 (Reuters) - The U.S. Treasury yield curve flattened to almost 10-year lows on Wednesday as investors evaluated the impact of hawkish Federal Reserve policy on the economy even as inflation measures are deteriorating. New York Fed President William Dudley and Boston Fed President Eric Rosengren both took the view this week that keeping interest rates low may pose risks to the economy.

I think the market may be pricing in a little higher odds of another rate hike before the end of the year, and that is helping drive some of the flattening, said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

Five-year note yields , which are highly sensitive

to rate policy, rose to a four-week high of 1.80 percent on Tuesday. They last traded at 1.77 percent.

Meanwhile, thirty-year bond yields , which are

largely driven by future expectations of growth and inflation, dropped to 2.72 percent on Wednesday, the lowest since Nov. 9. The yield curve between five-year notes and 30-year bonds flattened to 95 basis points, the narrowest since December 2007. Long bonds have been supported by inflation concerns, since data last Wednesday showed that the so-called core Consumer Price Index (CPI), which strips out food and energy costs, increased 1.7 percent year-on-year in May, the smallest rise since May 2015. Oil prices fell about 3 percent to a 10-month low in heavy trading on Wednesday, as nagging fears about a global glut fed a selloff that was interrupted briefly by news of a larger-than-expected drop in U.S. inventories. With no major economic data due this week investors are focused on Fed speakers. Federal Reserve Board Governor Jerome Powell will speak on Thursday and Friday. St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester will speak on Friday.

(Editing by Meredith Mazzilli and Bernadette Baum)

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