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TREASURIES OUTLOOK-U.S. bond yields slip before Fed's Powell testimony

* Traders await clues from Fed's Powell testimony before Congress

* U.S. 10-year yield holds below 4-year peak

* Fed's Bullard worry about further U.S. rate increases

* U.S. new home sales hit 5-month lows

(Repeats to additional subscribers) NEW YORK, Feb 26 (Reuters) - U.S. Treasury yields fell on Monday as traders reduced their bearish bond positions in advance of new Federal Reserve Chairman Jerome Powell's semi-annual monetary policy testimony before Congress this week. Data showing domestic new home sales hitting a five-month low also supported bond demand, which cooled off as Wall Street stocks rallied in late trading. Last week, the benchmark 10-year yield reached a four-year high near 3 percent on concerns about growing inflation and the U.S. government deficit expected from last year's massive tax overhaul and a two-year budget deal this month. Powell's debut appearance as head of the U.S. central bank is seen as critical for financial markets trying to determine whether he will take a more hawkish stance in raising interest rates than his predecessors, Janet Yellen and Ben Bernanke.

For now, most traders believe Powell will stick to a gradual rate-hike approach despite indications that inflation is perking up. "I would be surprised if he really deviates," said Paresh Upadhyaya, portfolio manager at Amundi Pioneer Asset Management in Boston. Powell will testify before the House of Representatives' Financial Services Committee on Tuesday and the Senate Banking Committee on Thursday. The yield on 10-year Treasury notes was 2.859 percent, down 1 basis point from Friday. Last Wednesday, it reached 2.957 percent, which was the highest since January 2014, Reuters data showed. Last week's yield rise was offset by safe-haven demand for Treasuries stemming from recent volatility in the stock market and the emergence of month-end buying to rebalance portfolios, analysts and traders said. "The market was a little overextended on the downside," said Thomas Roth, head of U.S. Treasury trading at MUFG Securities Americas in New York. In the wake of surprisingly strong data on wage gains and inflation in February, traders have ratcheted up bets that the Federal Reserve might raise interest rates four times in 2018, which is one more increase than what U.S. policymakers signaled in December. Earlier Monday, St. Louis Fed President James Bullard said further rate hikes may become too restrictive for the economy if they are not accompanied by data that shows faster growth and inflation. The bond market has recovered from last week's torrid pace of supply as the government has increased its borrowing to finance a rising budget shortfall due to the tax cuts and increased spending. Last week's $258 billion worth of Treasury bill and coupon supply was the second largest ever over a three-day period.

February 26 Monday 3:42PM New York / 2042 GMT Price

US T BONDS MAR8 144-1/32 -1/32 10YR TNotes MAR8 120-200/256 2/32 Price Current Net Yield % Change

(bps)

Three-month bills 1.6175 1.6463 0.002 Six-month bills 1.81 1.8516 0.005 Two-year note 100-10/256 2.2299 -0.012 Three-year note 99-164/256 2.376 -0.014 Five-year note 100-18/256 2.6099 -0.008 Seven-year note 99-200/256 2.7846 -0.007 10-year note 99 2.866 -0.005 30-year bond 96-224/256 3.1621 0.002 YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 63.40 0.90 30-year vs 5-year yield 55.00 1.50

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 26.50 1.25

spread

U.S. 3-year dollar swap 23.50 0.50

spread

U.S. 5-year dollar swap 10.75 0.25

spread

U.S. 10-year dollar swap 0.00 -0.75

spread

U.S. 30-year dollar swap -20.00 -1.00

spread

(Reporting by Richard Leong; Editing by Jonathan Oatis and Grant McCool)