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TREASURIES-Yields drop after reports ex-adviser Flynn to testify against Trump

Trump@

* Ex-adviser Flynn to testify against Trump

* White House says Flynn implicating himself alone

* U.S. senator says has enough votes to pass tax bill

(Adds comments, table, updates prices, table) NEW YORK, Dec 1 (Reuters) - U.S. Treasury yields plunged on Friday after ABC News reported that Michael Flynn, a former adviser to U.S. President Donald Trump, said he was prepared to testify that Trump directed him to make contact with the Russians when he was a presidential candidate. Reuters could not immediately verify the report. ABC News cited a confidant as saying Flynn was ready to testify that Trump directed him to make contact with Russians before he became president, initially as a way to work together to fight the Islamic State group in Syria. This developed as Flynn on Friday pleaded guilty to lying to the Federal Bureau of Investigation about contacts with Russia's ambassador, and prosecutors said he consulted with a senior official in Donald Trump's presidential transition team before speaking to the envoy. The benchmark 10-year Treasury yield dropped to a low of 2.315 percent after the news, from 2.415 percent late on Thursday. It was last at 2.365 percent. U.S. 30-year bond yields plunged to 2.716 percent, the lowest since Sept. 11, from Thursday's 2.831 percent. In late afternoon trading, the 30-year yield was 2.757 percent. The ABC report overshadowed news that U.S. Senate Republicans on Friday had gathered the votes needed to pass a sweeping tax overhaul, according to Senate Republican leader Mitch McConnell. The votes came after last-minute negotiations to ease concerns about the bill's impact on the federal deficit, healthcare and property taxes. The Senate bill news had little impact on the Treasuries given the Flynn drama. "This news (Flynn) comes just as the President was getting traction on his tax bill so the timing of this could well be damaging not only for the president himself but for the future of that tax bill," said James Hughes, chief market analyst at AxiTrader in London. Soon after the Flynn news broke, the White House issued a statement saying the former adviser's guilty plea on Friday implicated him alone. "The speed of the White House statement surely shows the severity of the situation. It's likely to be an uncomfortable weekend for President Trump," Hughes said. The market has been focused on tax reform this week, with yields tracking the highs and lows of the bill as lawmakers battled over it. Just before the Flynn news came out, yields were higher on the day, with the market optimistic a U.S. Senate tax bill would pass.

Friday, Dec. 1 at 1607 EST (2107 GMT): Price

US T BONDS MAR8 153-6/32 1-15/32 10YR TNotes MAR8 124-96/256 0-84/256 Price Current Net Yield % Change

(bps)

Three-month bills 1.245 1.2661 -0.003 Six-month bills 1.415 1.4448 0.000 Two-year note 99-242/256 1.7781 -0.012 Three-year note 99-156/256 1.8867 -0.016 Five-year note 99-114/256 2.1177 -0.026 Seven-year note 99-12/256 2.2732 -0.042 10-year note 98-252/256 2.3651 -0.050 30-year bond 99-196/256 2.7615 -0.070

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 18.50 0.00

spread

U.S. 3-year dollar swap 18.00 -0.25

spread

U.S. 5-year dollar swap 5.75 0.00

spread

U.S. 10-year dollar swap -0.25 0.50

spread

U.S. 30-year dollar swap -21.50 1.50

spread

(Reporting by Gertrude Chavez-Dreyfuss; additional reporting by Sinead Carew; editing by Diane Craft)