(Adds auction results, quotes, updates prices)
* North Korean missile sparks flight-to-safety buying
* Treasury sells $28 bln seven-year notes to strong demand
* Friday's U.S. employment report in focus
NEW YORK, Aug 29 (Reuters) - U.S. benchmark 10-year Treasury note yields fell on Tuesday to their lowest since last November after North Korea fired a ballistic missile over northern Japan and into the sea, sparking safety buying of the bonds. The action prompted a warning from U.S. President Donald Trump, calls to residents to take cover and drew a sharp reaction from Japanese Prime Minister Shinzo Abe. "That has the market spooked, and thats whats behind the move lower in rates today," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
Ten-year Treasury yields dropped as low as 2.086
percent, the lowest since Nov. 10, 2016 - two days after Trump won the U.S. presidential election - before rising back to 2.14 percent. The yield curve between two- and 10-year Treasuries flattened as far as 77 basis points, from 83 basis points late on Monday and the narrowest level since June 27. Some reluctance to buy bonds at their lowest yields of the year was seen as capping the rally. "The question becomes how heavily positioned in Treasuries do you want to be when yields are at year-to-date lows," said Goldberg. "I think thats making it a little bit difficult to be positioned extremely." The Treasury Department saw strong demand for its $28 billion sale of U.S. seven-year notes, despite the debt paying the lowest yields since October. Indirect bidders, which include fund managers and foreign central banks, purchased 68.80 percent of the latest seven-year
note offering , their biggest share since the record
high 81.69 percent in April. Market participants are also focused on a busy week of data this week, culminating in Friday's closely-watched U.S. employment report for August. August payrolls numbers have missed expectations for the past six consecutive years, and for 13 out of the last 17 years, which could lead to a modest rally in Treasuries if it occurs again, said Mike Schumacher, head of rate strategy at Wells Fargo in New York. Buying for month-end extensions may also boost bonds through Thursday, with potentially further strength on Friday as the extension is larger than average. "The month-end index extension is pretty large. Most of that will probably happen on the 31st, but still you could have some knock-on effects on the first," Schumacher said. Investors are also evaluating whether Tropical Storm Harvey is likely to have a lasting impact on the U.S. economy, after bringing catastrophic flooding to Texas.
(Editing by G Crosse)