TREASURIES OUTLOOK-U.S. bond yields climb as retail sales grow in June

* Traders await Fed's Powell testimony before Congress

* U.S. 2-year yield touches near decade high

* U.S. yield curve hovers at flattest level in 11 years

(Repeats to additional subscribers) NEW YORK, July 16 (Reuters) - U.S. Treasury yields increased on Monday with the two-year yield hitting a near decade peak as domestic retail sales recorded growth for a fifth straight month in June, supporting the view of solid economic growth in the second quarter. The encouraging figures on store sales offset concerns about the United States' trade friction with China and other trade partners, reducing some safe-haven demand for U.S. government bonds, analysts and fund managers said. "The economic news has been pretty good. Trade concerns are getting a bit pushed to the sidelines for now," said Andrew Richman, director of fixed income at SunTrust Advisory Services in Jupiter, Florida. The Commerce Department said retail sales rose 0.5 percent last month, compared with an upwardly revised 1.3 percent gain in May. On light summer volume, the benchmark 10-year Treasury yield was 2.7 basis points higher at 2.858 percent after hitting its highest in more than a week. The 2-year yield notched up nearly 2 basis points at 2.603 percent after touching its highest level since August 2008. Federal Reserve Chairman Jerome Powell is due to give two days of testimony before Congress starting on Tuesday. He is expected to express confidence in the U.S. economy and affirm the Fed's gradual approach to raising short-term interest rates, analysts said. "His comments have been pretty optimistic. The latest retail sales data will give him more ammo," said Bryce Doty, senior portfolio manager at Sit Fixed Income Advisors LLC in Minneapolis. The futures market signaled traders saw roughly a 60 percent chance the U.S. central bank would raise key overnight borrowing costs twice more in 2018 to a range of 2.25 percent to 2.50 percent, according to CME Group's FedWatch program. The Fed's current rate-hike campaign has stoked concerns short-term yields would eventually rise above long-dated yields, causing the yield curve to invert An inverted yield curve has preceded the past five U.S. recessions. Earlier Monday, the spread between 2-year and 10-year Treasury yields contracted to 23.40 basis points, the tightest since July 2007. It was last at 25.30 basis points, almost 1 basis point wider than late Friday. Meanwhile, the corporate bond sector is flashing rising recession risk amid the seeming vigor of the current expansion.

Some investors downplayed risk of a recession if the yield curve does invert. "I don't believe an inverted yield curve is forecasting a recession," Larry Fink, chief executive of BlackRock, the world's biggest asset manager, told Reuters.

July 16 Monday 2:36PM New York / 1836 GMT Price

US T BONDS SEP8 145-4/32 -18/32 10YR TNotes SEP8 120-40/256 -7/32 Price Current Net Yield % Change

(bps)

Three-month bills 1.945 1.9812 0.010 Six-month bills 2.1075 2.1591 -0.005 Two-year note 99-206/256 2.6028 0.021 Three-year note 99-218/256 2.6769 0.022 Five-year note 99-104/256 2.7539 0.026 Seven-year note 99-136/256 2.8246 0.025 10-year note 100-36/256 2.8582 0.027 30-year bond 103-40/256 2.9647 0.032 YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 25.30 0.80 30-year vs 5-year yield 21.00 0.55

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 22.25 0.00

spread

U.S. 3-year dollar swap 19.75 0.25

spread

U.S. 5-year dollar swap 13.50 -0.25

spread

U.S. 10-year dollar swap 6.00 -0.50

spread

U.S. 30-year dollar swap -5.00 -1.25

spread

(Additional reporting by Trevor Hunnicutt Editing by Susan Thomas and Jonathan Oatis)