TREASURIES-U.S. bond yields ends choppy quarter slightly higher

* Reports on Trump, Warsh meeting raise bets on more hawkish Fed

* U.S. Midwest factory activity shows resilience, inflation muted

* Treasuries set to eke out 0.06 percent return in third quarter

(Updates market action, adds quote) NEW YORK, Sept 29 (Reuters) - Most U.S. Treasury yields edged higher on Friday, marking the end of a choppy third quarter, as investors weighed the chances on the Federal Reserve raising interest rates in December and Washington's implementation of tax cuts and other fiscal changes. Bond yields rose modestly on encouraging data about steady economic growth and reports U.S. President Donald Trump met with former Federal Reserve Governor Kevin Warsh about a potential nomination to head the U.S. central bank. In light of his views on rates and past stance against expansion of the Fed's balance sheet, Warsh is seen as more hawkish than current Fed Chair Janet Yellen, whose term expires in February, analysts said. "He has the make-up to be more hawkish, but you don't know until he gets the job," said Jim Caron, portfolio manager at Morgan Stanley Investment Management in New York. Consumer spending nudged up 0.1 percent in August but a gauge of U.S. Midwest factory activity unexpectedly rose in September despite disruptions stemming from hurricanes Harvey and Irma. Friday's data did not change traders' expectations, at about 73 percent, that the Fed would raise short-term rates again in December. Longer-dated yields were supported by a deceleration in a measure of the core rate of personal consumption expenditure, the Fed's preferred inflation gauge. The annual rise in core PCE slowed to 1.3 percent in August, the weakest reading since November 2015. The benchmark 10-year U.S. Treasury note yield was up 2 basis points at 2.325 percent, while the 30-year yield was down 0.9 basis point at 2.859 percent. The two-year yield was up over 2 basis points at 1.479 percent, not too far from the near nine-year peak it reached this week. For the month, Treasury yields were on track to post their biggest monthly increase since November during a global market sell-off following Trump's surprise presidential victory. Due to the sharp rise in yields this month, Treasuries recorded a slim return of 0.06 percent for the third quarter, bringing their year-to-date gain to 2.31 percent, according to an index compiled by Barclays and Bloomberg. The $14 trillion sector has experienced a choppy quarter. Bond yields fell in July and August on soft economic data and anxiety about tensions between North Korea and the United States over Pyongyang's missiles and nuclear weapons programs. They turned higher in September, with the 10-year yield hitting an 11-week high this week on hints the Fed may raise rates in December and Trump's roll-out of a tax plan that raised concerns it may increase the federal deficit and borrowing.

September 29 Friday 3:07PM New York / 1907 GMT Price

US T BONDS DEC7 152-26/32 0-1/32 10YR TNotes DEC7 125-80/256 -0-60/25


Price Current Net Yield % Change


Three-month bills 1.04 1.0571 0.000 Six-month bills 1.1725 1.1957 0.003 Two-year note 99-204/256 1.4787 0.024 Three-year note 99-80/256 1.6143 0.036 Five-year note 99-196/256 1.9244 0.029 Seven-year note 99-196/256 2.1613 0.026 10-year note 99-92/256 2.3229 0.016 30-year bond 97-220/256 2.8569 -0.011


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 25.00 0.25


U.S. 3-year dollar swap 22.75 -0.75


U.S. 5-year dollar swap 7.50 0.00


U.S. 10-year dollar swap -4.75 -0.50


U.S. 30-year dollar swap -33.25 0.00


(Reporting by Richard Leong; Editing by Chizu Nomiyama and James Dalgleish)