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TREASURIES-U.S. 2-year note yield hits fresh 9-year high as curve flattens

(Adds comment, updates prices, table)

* U.S. yield curve flattens for second straight day

* Fed's Bostic says flat, inverted curve does not mean recession

NEW YORK, Nov 14 (Reuters) - U.S. Treasury two-year note yields touched a nine-year high on Tuesday, while those on long-dated debt fell as the yield curve flattened for a second straight day and investors braced for the next tightening by the Federal Reserve in December. A flattening of the yield curve typically suggests the Fed is on track to raise U.S. interest rates, pushing yields on the short end higher, while low inflation is seen limiting those on longer-dated bonds. U.S. benchmark 10-year yields hit a nearly three-weak peak after data showed U.S. producer prices rose a more-than- expected 0.4 percent last month, boosting the PPI 2.8 percent in the 12 months through October for the biggest annual increase in wholesale inflation in more than 5-1/2 years. Even though yields on both the two-year and the 10-year rose after the U.S. data, the curve continued to tighten. The yield gap between shorter-dated and longer-dated Treasuries shrank, with the spread between U.S. two-year note yields and U.S. 10-year note yields contracting to 69 basis points. The spread between five-year and 30-year yields also flattened to 77.20 basis points. That was the narrowest in nearly two weeks. "The flattening in the U.S. curve is mostly an outgrowth of Fed hikes in a low inflation environment and ... tends to be associated with lower growth and higher risks premiums in the future," said Richard Franulovich, head of FX strategy at Westpac in New York. Franulovich noted that if the Fed were to pursue as many as five rate hikes in 2018 and 2019, as indicated in its so-called dot plots, in a persistently sub-par inflation environment, real fed funds will move significantly higher and likely invert the curve. An inverted yield curve usually precedes economic slowdowns, if not recessions. But Atlanta Fed President Raphael Bostic on Tuesday said a flatter curve may reflect safe-haven investing and confidence in the U.S. economy and, were the trend to lead to an inverted yield curve, it would not necessarily signal a pending recession. In late trading, the 10-year Treasury yield was at 2.378 percent, down from 2.4 percent late on Monday. Earlier, U.S. 10-year yields hit 2.414, the highest since late October. The U.S. two-year yield hit a nine-year peak just shy of 1.7 percent, up from Monday's 1.687 percent. U.S. 30-year bond yields, on the other hand, fell to 2.836 percent, from 2.869 percent on Monday.

Tuesday, Nov. 14 at 1520 EST (2020 GMT): Price

US T BONDS DEC7 152-28/32 0-15/32 10YR TNotes DEC7 124-188/256 0-28/256 Price Current Net yield change (pct) (bps) Three-month bills 1.2475 1.2689 0.054 Six-month bills 1.3675 1.3961 0.026 Two-year note 99-162/256 1.6913 0.004 Three-year note 99-210/256 1.8118 -0.005 Five-year note 99-180/256 2.0632 -0.010 Seven-year note 99-244/256 2.2572 -0.015 10-year note 98-216/256 2.3806 -0.019 30-year bond 98-60/256 2.8378 -0.031

DOLLAR SWAP SPREADS

Last (bps) Net

change (bps)

U.S. 2-year dollar swap 18.75 -0.75

spread

U.S. 3-year dollar swap 17.25 -0.50

spread

U.S. 5-year dollar swap 5.75 -0.50

spread

U.S. 10-year dollar swap -2.00 -0.50

spread

U.S. 30-year dollar swap -25.00 0.00

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith Mazzilli)