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TREASURIES-U.S. yields fall ahead of supply, Yellen speech

* U.S. to sell $88 bln short to medium notes

* Fed's Dudley expects continued gradual U.S. rate increases

* German election results spur safe-haven bids

NEW YORK, Sept 25 (Reuters) - U.S. Treasury yields slipped on Monday, holding in a tight trading range ahead of this week's government debt supply and a speech on Tuesday from Federal Reserve Chair Janet Yellen. U.S. bond yields initially fell in step with their German counterparts following a surprisingly weak election result for Germany's Angela Merkel as a surge in support for the far right stoked concerns about a more hardline stance towards the euro zone. "Even with the lower rates on Friday and the volatility this morning, we are seeing more evidence we are in a tight trading range," said Mike Lorizio, head of Treasuries trading at Manulife Asset Management in Boston. At 9:56 a.m. (1356 GMT), benchmark 10-year Treasury yield was down nearly 2 basis points at 2.246 percent. Last Wednesday, the 10-year yield reached 2.289 percent, its highest since Aug. 8, after the Fed signaled it may raise interest rates at its Dec. 12-13 policy meeting. Ten-year yields have since retreated from those highs partly on anxiety about tensions between North Korea and the United States and its allies. The North Korean foreign minister was scheduled to make a public statement at 10 a.m. (1400 GMT). Still, traders appeared more focused on this week's bond supply and what Yellen may hint about a possible December rate increase than on geopolitical concerns. The Treasury Department will sell $26 billion of two-year notes on Tuesday; $34 billion in five-year debt on Wednesday and $28 billion of seven-year notes on Thursday. Companies also geared up to raise cash in the bond market before the end of the third quarter. On Tuesday, Yellen is scheduled to speak on "Prospects for Growth: Reassessing the Fundamentals" at 12:45 p.m. (1645 GMT). Earlier on Monday, New York Fed President William Dudley said the U.S. central bank is on track to gradually raise rates given factors depressing inflation are "fading" and the U.S. economy's fundamentals are sound. Interest rates futures implied traders saw about a 74 percent chance the Fed would raise rates in December , little changed from late on Friday, CME Group's FedWatch tool showed. September 25 Monday 9:56AM New York / 1356 GMT Price

US T BONDS DEC7 154-11/32 0-8/32 10YR TNotes DEC7 125-220/256 0-32/256 Price Current Net Yield % Change

(bps)

Three-month bills 1.0125 1.0291 0.000 Six-month bills 1.17 1.1931 0.008 Two-year note 99-166/256 1.4354 -0.008 Three-year note 99-108/256 1.575 -0.013 Five-year note 98-230/256 1.8599 -0.011 Seven-year note 98-164/256 2.0867 -0.014 10-year note 100-4/256 2.2481 -0.014 30-year bond 99-72/256 2.7855 -0.010

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 26.50 0.00

spread

U.S. 3-year dollar swap 22.25 -0.25

spread

U.S. 5-year dollar swap 8.00 -0.50

spread

U.S. 10-year dollar swap -3.75 -0.25

spread

U.S. 30-year dollar swap -31.75 -0.50

spread

(Reporting by Richard Leong; Editing by Meredith Mazzilli)