TREASURIES-U.S. yield inversion spreads on worries about slowing growth

* Parts of U.S. yield curve inverted 1st time in over a decade

* Traders shrug off upbeat comments from Fed's Williams

* U.S. markets to close Wednesday to mourn President Bush

(Updates market action, adds quote) NEW YORK, Dec 4 (Reuters) - The premium between shorter-dated U.S. Treasury yields above longer-dated ones rose on Tuesday, spreading the inversion of the yield curve between more maturities as traders piled on bets on slowing U.S. economic growth. The two-year yield briefly rose above the three-year yield for the first time since January 2008. Two-year and three-year yields held above the five-year yield for a second day, Tradeweb data showed. Expectations that business and consumer activities would fall in the coming months spurred buying of longer-dated Treasuries, sending the benchmark 10-year yield to its lowest levels since mid-September. The inversion of the two-year and 10-year yields preceded the past three U.S. recessions. So far that inversion has not occurred. The 10-year yield held a 12 basis point margin over its two-year counterpart, albeit it was the smallest one in over a decade. "It doesn't signal there's a recession anytime soon. It is signaling expectations of a growth slowdown," Deborah Cunningham, chief investment officer of money markets at Federated Investment Management Co. in Pittsburgh, said of the parts of the curve that inverted. At 11:01 a.m., the 10-year Treasury yield fell nearly 4 basis points to 2.953 percent after hitting its lowest level since Sept. 11. The 30-year yield touched 3.203 percent, the lowest since Oct. 3. Concerns about weaker growth has also stoked bets the Federal Reserve would end its rate-hike campaign sooner than previously thought, analysts said. The futures market implied traders expect the U.S. central bank will raise interest rates by a quarter point to 2.25-2.50 percent at its next policy meeting on Dec. 18-19, according to CME Group's FedWatch program. However, they scaled back their expectations of two rate hikes in 2019 to less than 10 percent, down from 59 percent a month ago. The traders' reduced outlook on the number of future Fed rate hikes did not alter following upbeat remarks on the economy from New York Federal Reserve President John Williams. "Given this outlook I describe of strong growth, strong labor market and inflation near our goal - and taking into account all the various risks around the outlook - I do continue to expect that further gradual increases in interest rates will best foster a sustained economic expansion and a sustained achievement of our dual mandate," Williams told reporters.

U.S. stock and bond markets will be closed on Wednesday for a national day of mourning for U.S. President George H.W. Bush, who died on Friday. December 4 Tuesday 11:25AM EDT/ 1625 GMT Price

US T BONDS DEC8 142-12/32 1-7/32 10YR TNotes MAR9 119-232/256 0-80/256 Price Current Net Yield % Change

(bps)

Three-month bills 2.375 2.4227 0.018 Six-month bills 2.5 2.5672 0.005 Two-year note 99-220/256 2.8232 -0.010 Three-year note 100-32/256 2.8301 -0.014 Five-year note 100-76/256 2.8107 -0.028 Seven-year note 100-8/256 2.87 -0.040 10-year note 101-148/256 2.9407 -0.050 30-year bond 103-92/256 3.1997 -0.078

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 16.25 -0.50

spread

U.S. 3-year dollar swap 15.00 -0.50

spread

U.S. 5-year dollar swap 13.75 -0.50

spread

U.S. 10-year dollar swap 6.00 0.50

spread

U.S. 30-year dollar swap -12.50 1.50

spread

(Reporting by Richard Leong Editing by Frances Kerry)