TREASURIES-U.S. yield curve moves to flattest level in a decade

* Latest jobs report supports notion of low U.S. inflation

* U.S. to sell $62 bln in coupon debt at November refunding

* U.S. 30-year yield hits lowest level since late September

(Updates market action, adds quote) NEW YORK, Nov 6 (Reuters) - The gap between U.S. short-dated and long-dated Treasury yields on Monday contracted to its tightest levels in a decade as sluggish domestic inflation underpinned demand for longer-maturity government bonds. Inflation will likely hold below the Federal Reserve's 2 percent goal in the wake of the latest payrolls report released on Friday, which showed average hourly earnings stalled last month while jobs growth rebounded after it was depressed by Hurricanes Harvey and Irma in September. The October jobs figures supported the notion the U.S. central bank would raise short-term interest rates at its December policy meeting. "It's a continuation of the belief that last week's jobs report will not derail a rate hike in December," said Bryce Doty, senior portfolio manager at Sit Investment Associates in Minneapolis. Uncertainty over whether Republicans could pass their tax plan has also flattened the yield curve as it diminished hopes for faster economic growth and worries about more U.S. borrowing to finance it. The yield spread between two-year and 10-year Treasuries broke below 70 basis points, a level last seen in November 2007, Reuters data showed. Monday's yield flattening was led by the fall in longer-dated yields with the 30-year yield hitting its lowest level since late September. The benchmark 10-year yield was down 2.5 basis points at 2.318 percent after hitting its lowest level in two weeks, while the two-year yield slipped nearly 1 basis point at 1.617 percent. The 30-year yield was 2.797 percent, down 2.5 basis points from late Friday. Interest rate futures implied traders fully priced in a quarter-point rate increase from the Fed at its Dec. 12-13 meeting, CME Group's FedWatch tool showed. "Expect a resumption of the curve flattening" after the Fed's last meeting in 2017, Doty said. The decline in bond yields was limited by the $62 billion in coupon-bearing supply for sale this week. Proceeds from the sale of the new debt would raise $19.3 billion in cash for the government and refund $42.7 billion to Treasuries holders. The Treasury Department will sell $24 billion in three-year notes on Tuesday; $23 billion in 10-year debt on Wednesday and $15 billion in 30-year bonds on Thursday. Longer-dated yields have fallen in the aftermath of comments last week from Treasury Secretary Steve Mnuchin who signaled there is no pending plan for the government to introduce a long-dated issue that matures beyond 30 years, fund managers said.

Monday, Nov. 6 at 1435 EST (1935 GMT): Price

US T BONDS DEC7 154-7/32 0-18/32 10YR TNotes DEC7 125-92/256 0-52/256 Price Current Net yield change (pct) (bps) Three-month bills 1.17 1.1896 0.013 Six-month bills 1.28 1.306 0.005 Two-year note 99-198/256 1.6167 -0.008 Three-year note 99-184/256 1.7235 -0.013 Five-year note 100-20/256 1.9834 -0.022 Seven-year note 100-128/256 2.1724 -0.027 10-year note 99-104/256 2.3181 -0.025 30-year bond 99-16/256 2.7965 -0.026 YIELD CURVE Last (bps) Net

change (bps)

10-year vs 2-year yield 69.90 -1.70 30-year vs 5-year yield 81.30 -0.85


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 20.75 -0.50


U.S. 3-year dollar swap 20.25 0.00


U.S. 5-year dollar swap 7.25 0.25


U.S. 10-year dollar swap -2.75 -0.50


U.S. 30-year dollar swap -27.25 -1.00


(Reporting by Richard Leong; Editing by Susan Thomas and Chizu Nomiyama)