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TREASURIES-Bond yields drop as Treasury gives no hints on new long issue

* Treasury fails to guide on possible new long bond

* U.S. yield curve flattest since July 26

NEW YORK, Aug 2 (Reuters) - Long-dated debt yields plunged on Wednesday, and the yield curve flattened to its lowest levels in a week, after the U.S. Treasury Department gave no indications about new long-dated issuance in a quarterly refunding statement. The Treasury said it will borrow $96 billion in the third quarter and has begun to consider how it will increase debt issuance later in the year to make up for a future decline in Federal Reserve bond purchases. It gave no further immediate information on its consideration of introducing ultra-long bonds. In May, the Treasury said it was studying the possibility of issuing ultra-long bonds, although its advisory committee had questioned investor enthusiasm for such a change. "They seem to be pushing off the really hard decisions that they are going to have to make to November," said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York.

Thirty-year Treasury bonds were last down 4/32

in price to yield 2.85 percent, down from 2.88 percent before the announcement. The yield curve between five-year notes and 30-year bonds flattened to 103 basis points, the lowest level since July 26. Concerns about bumping up against the debt ceiling may have delayed the Treasury from increasing debt issuance this quarter. "In that context it makes sense to not increase sizes when you think you may have to delay auctions or cut sizes to avoid running over the limit," Kohli said. The Congressional Budget Office has said U.S. lawmakers need to raise the debt ceiling by mid-October to avoid defaulting on debt payments. The Treasury said on Monday that borrowing is likely to swell to $501 billion in the fourth quarter. The next major focus for investors is Friday's employment report for July.

(Editing by Nick Zieminski)

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