TREASURIES-U.S. yield curve flattens on refunding plan, month-end buying

(Updates market action, adds quote, table)

* U.S. leans on short-dated debt to fund growing deficit

* ADP data show further improvement in U.S. labor market

* Fed to release policy statement at 2 p.m. (1900 GMT)

* Treasuries on track for worst month since Nov 2016

NEW YORK, Jan 31 (Reuters) - The margin on longer-dated U.S. Treasury yields over short-dated ones shrank on Wednesday as the government favored selling more short-dated debt than longer-dated issue to finance the projected rise in its budget deficit. The yield curve also flattened on stepped up purchases on longer-dated Treasuries at month-end as investors reallocated money into fixed income from stocks in a month where the S&P 500 index is poised for its best month since March 2016.

On the other hand, Treasuries have lost 1.42 percent in January, putting them for their worst monthly performance since November 2016, according to an index compiled Longer-dated Treasury yields initially rose when the government said it will increase the monthly auction size of 10-year and 30-year debt. They quickly retreated when traders focused on faster increases in two-year and three-year maturities versus the pickup in longer-dated supply.

"They were more aggressively on the front-end than what people had expected," said Tom Simons, money market strategist at Jefferies & Co. in New York. Meanwhile, traders were waiting for the Federal Reserve's latest policy statement at 2 p.m. (1900 GMT) following the last meeting for Janet Yellen, whose position as Fed chief will be filled by Jerome Powell. Most analysts anticipated Fed policy-makers would stick to their median view for three rate increases in 2018 and may upgrade their inflation outlook amid signs of faster global growth. At 10:18 a.m. (1518 GMT), the spread between five-year and 30-year Treasury yield narrowed to 44 basis points, a couple of basis points from the slimmest level in a decade set on Monday, according to Tradeweb. Benchmark 10-year Treasury yield was down half a basis point at 2.720 percent, below a near four-year peak of 2.733 percent reached on Wednesday. Two-year yield was up nearly 2 basis points at 2.141 percent, which was below a nine-plus year peak of 2.161 percent set on Monday. On the data front, U.S. companies hired 234,000 workers in January, more than the 185,000 projected by economists polled by Reuters. The December figure was revised down to 242,000. The latest ADP data did not cause a stir in the bond market as they reinforced the view of a labor market at or near full employment which would support the Fed raising rates in March, analysts said. Jan. 31 Wednesday 10:19AM New York / 1519 GMT Price

US T BONDS MAR8 147-24/32 0-12/32 10YR TNotes MAR8 121-164/256 0 Price Current Net Yield % Change


Three-month bills 1.435 1.4602 0.000 Six-month bills 1.6275 1.6638 0.000 Two-year note 99-186/256 2.1406 0.017 Three-year note 99-56/256 2.2749 0.017 Five-year note 99-90/256 2.5139 0.007 Seven-year note 99-8/256 2.6526 -0.002 10-year note 95-252/256 2.72 -0.005 30-year bond 95-228/256 2.9584 -0.022


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 19.25 0.25


U.S. 3-year dollar swap 18.75 0.00


U.S. 5-year dollar swap 7.75 0.75


U.S. 10-year dollar swap 2.50 0.75


U.S. 30-year dollar swap -13.50 1.50


(Reporting by Richard Leong; Editing by Frances Kerry)