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

(Updates market action, adds quote)

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

* U.S. 10-year yield hits lowest level in two weeks

NEW YORK, Nov 6 (Reuters) - The gap between U.S. short-dated and long-dated Treasury yields on Monday shrank to its tightest levels in a decade as sluggish domestic inflation underpinned demand for longer-maturity government bonds. High expectations the Federal Reserve would raise short-term interest rates at its December policy meeting and uncertainty over whether Republicans could pass their plan to change federal tax codes have also flattened the yield curve. "The yield curve typically flattens with the Fed raising rates. We also have decent growth and low inflation," said Eric Stein, co-director of the global income group at Eaton Vance in Boston. The yield spread between two-year and 10-year Treasuries broke just 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. At 9:39 a.m. (1415 GMT), the benchmark 10-year yield was down 1 basis point at 2.329 percent after hitting its lowest level in two weeks, while the two-year yield was unchanged at 1.625 percent. The 30-year yield was 2.804 percent, down 2 basis points from late Friday. Interest rates 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. 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 issue that matures beyond 30 years, Stein said. November 6 Monday 9:37AM New York / 1437 GMT Price

US T BONDS DEC7 154-2/32 0-13/32 10YR TNotes DEC7 125-76/256 0-36/256 Price Current Net Yield % Change


Three-month bills 1.1675 1.187 0.010 Six-month bills 1.28 1.306 0.005 Two-year note 99-194/256 1.6247 0.000 Three-year note 99-176/256 1.7345 -0.002 Five-year note 100-8/256 1.9933 -0.012 Seven-year note 100-108/256 2.1845 -0.014 10-year note 99-76/256 2.3307 -0.012 30-year bond 98-228/256 2.8051 -0.017


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 7.50 0.50


U.S. 10-year dollar swap -2.50 -0.25


U.S. 30-year dollar swap -26.75 -0.50


(Reporting by Richard Leong; Editing by Susan Thomas)