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TREASURIES-Yield curve flattest since May as market awaits Fed guidance

the Federal Reserve later this month.

(Recasts, updates yields, adds analyst quotes) NEW YORK, July 8 (Reuters) - The U.S. Treasury yield curve hit its flattest level in more than a month on Monday as investors tempered Friday's reaction to the strong June employment data, with yields on long-duration bonds falling even as traders significantly reduced bets for an aggressive rate cut Investors are now focused on Fed Chairman Jerome Powell's testimony before Congress later in the week for clues on monetary policy. A sharp rebound in U.S. job growth in June cut expectations that the Fed will cut interest rates by 50 basis points when it meets at the end of July. A week ago, the market forecast an 80.1% chance of a 25-basis-point cut, and a 19.9% chance of a 50-basis-point cut, according to CME Group's FedWatch tool. In afternoon trade, the chances were 92% and 8%, respectively. "To suggest the market is in a holding pattern ahead of Powells appearance on Wednesday would be an understatement. This weeks events are clearly weighted toward the latter half and it would appear so is the potential for any meaningful price action," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. Powell will deliver the Fed's semiannual monetary policy report to the House of Representatives Financial Services Committee on Wednesday, followed by testimony before the Senate Banking Committee on Thursday. The long end of the Treasury yield curve on Monday was lower, with the short end up modestly. The spread between two- and 10-year yields, the most widely used measure of the yield curve, fell to a low of 14.9 basis points from its close Friday at 16.9. The yield on the benchmark 10-year note was last down half a basis point at 2.039%, with the 30-year yield 2.4 basis points lower at 2.524%. The moves tempered the dramatic rise in yields on Friday following the jobs report, a reaction which may have been exaggerated by low-volume trading following the Fourth of July holiday. Later in the week, the United States will report consumer price inflation numbers, which are expected to be weak as a result of lower gasoline prices. "It may provide the final piece of confirmation for a 25-basis-point rate cut in July," wrote Thomas Simons, senior money market economist at Jefferies.

July 8 Monday 3:06PM New York / 1906 GMT Price

US T BONDS SEP/d 155-15/32 16/3210YR TNotes SE/d 127-140/256 3/32Price Current NetYield % Change

(bps)

Three-month bills 2.1925 2.2408 0.023Six-month bills 2.07 2.1203 -0.009Two-year note 99-127/256 1.886 0.013Three-year note 99-196/256 1.8323 0.005Five-year note 99-134/256 1.8507 0.009Seven-year note 99-156/256 1.9351 0.00610-year note 102-252/256 2.0389 -0.00530-year bond 107-84/256 2.524 -0.024YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 15.10 -1.8030-year vs 5-year yield 67.20 -3.65

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 2.75 -0.75

spread

U.S. 3-year dollar swap 0.75 -0.50

spread

U.S. 5-year dollar swap -2.75 -0.75

spread

U.S. 10-year dollar swap -6.00 -0.75

spread

U.S. 30-year dollar swap -32.00 0.00

spread

(Reporting by Kate Duguid; Editing by Leslie Adler)