TREASURIES-Yields retreat on Syria fears; curve flattest in 10 years

* U.S. CPI falls, but core rises; neutral impact on yields

* Possible U.S. action in Syria weighs on yields

* U.S. 10-year note auction shows tepid demand

* Fed minutes affirms gradual rate hike path

(Adds comment, results of 10-year auction; updates prices, table) NEW YORK, April 11 (Reuters) - U.S. Treasury yields declined on Wednesday on escalating geopolitical tensions after President Donald Trump warned Russia of imminent military action in Syria over a suspected poison gas attack. Trump declared on Wednesday that missiles "will be coming," as he lambasted Russia for standing by Syrian President Bashar al-Assad following a suspected gas attack that killed more than 40 people and affected hundreds of others. U.S. benchmark 10-year note and 30-year bond yields, which move inversely to prices, slid to one-week lows, while 2-year yields slipped after two days of gains. "This is mostly geopolitical tension," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco. "There are concerns obviously in the Middle East and what might happen. So risks are certainly higher." Yields, however, briefly edged higher after modestly hawkish minutes from the Federal Reserve's last policy meeting, as policymakers felt the U.S. economy would firm further and inflation would rise in the coming months. "These minutes have a hawkish lean," said Collin Martin, senior fixed income research analyst, at Schwab Center for Financial Research in New York. "To us, the Fed will continue to raise rates at a gradual pace." The U.S. yield curve flattened further on Wednesday, with the gap between U.S. 2-year and 10-year note yields at their narrowest in 10 years. Analysts said that reflected a scenario of a Fed raising interest rates at a time when investors think there is very little inflation in the economy. Yields also rose after a lackluster U.S. 10-year note auction that drew its lowest demand in nearly 1-1/2 years from so-called "indirect bidders", which include fund managers and foreign central banks. Action Economics' Rupert noted that demand for Treasuries has been tepid over the last 12 months. This, she said, signifies the fact that the Fed has been raising interest rates and that investors expect more government bond supply on the way to finance the country's budget deficit In afternoon trading, the U.S. 10-year yields were down at 2.7826 percent, from 2.797 percent late on Tuesday. U.S. 30-year yields sank to 2.995 percent, from Tuesday's 3.017 percent. On the front end of the curve, U.S. 2-year yields dipped to 2.311 percent, compared with 2.315 percent on Tuesday. Earlier data showing a rise in U.S. core inflation for March, which was up 0.2 percent and matched February's increase rise, failed to boost yields, as headline consumer prices fell for the first time in 10 months.

Wednesday, April 11 at 1532 EDT (1932 GMT): Price

US T BONDS JUN8 146-10/32 0-12/32 10YR TNotes JUN8 120-232/256 0-36/256 Price Current Net Yield Change (pct) (bps) Three-month bills 1.7025 1.7336 -0.002 Six-month bills 1.885 1.9296 -0.005 Two-year note 99-226/256 2.3111 -0.004 Three-year note 99-204/256 2.4457 -0.009 Five-year note 99-122/256 2.6129 -0.010 Seven-year note 99-96/256 2.724 -0.015 10-year note 99-188/256 2.7808 -0.016 30-year bond 100-28/256 2.9943 -0.023


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 30.75 0.75


U.S. 3-year dollar swap 24.50 0.25


U.S. 5-year dollar swap 13.50 0.75


U.S. 10-year dollar swap 3.50 0.50


U.S. 30-year dollar swap -13.50 0.75


(Reporting by Gertrude Chavez-Dreyfuss Editing by Chizu Nomiyama and Susan Thomas)