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TREASURIES-U.S. bond yields nudge higher as supply weighs

* U.S. sells $23 bln in 10-year notes to solid demand * Corporate bond supply competes for investors' cash * U.S. yield curve reaches flattest level in a decade (Updates market action, adds quote) By Richard Leong NEW YORK, Nov 8 (Reuters) - U.S. Treasury yields edged higher on Wednesday with the yield curve close to its flattest level in a decade, as investors reduced their existing bond holdings to make room for this week's government and corporate bond supply.

Demand for new issues have been solid, led by $23 billion of U.S. benchmark 10-year Treasury notes, the second part of the November quarterly refunding worth $64 billion.

Healthy appetite for longer-dated debt underscored traders' preference for them over shorter-dated issues over the past week and a half, as they brace for further rate increases from the Federal Reserve while expecting domestic inflation to hold below the Fed's 2-percent target, analysts said.

Uncertainty about whether Republicans in U.S. Congress will pass tax cuts and other changes to federal tax code have made such "curve-flattener" trades more appealing, they said, as have diminished chances the government will introduce a Treasury bond that matures beyond 30 years.

"The flattening curve is reflecting all the pieces of this jigsaw puzzle," said Sean Simko, senior portfolio manager at SEI in Oaks, Pennsylvania.

While keen demand for longer-dated Treasuries raised concerns that this week's 10-year and 30-year supply may be pricy, Wednesday's auction results signaled investors were willing accept 10-year yields hovering near three-week lows.

The ratio of bids to the amount of 10-year notes offered, a proxy on overall auction demand, was 2.48, which was above its 12-month average.

The Treasury Department will complete its November refunding with a $15 billion auction of 30-year bonds at 1 p.m. (1800 GMT) on Thursday.

Meanwhile, companies have raised more than $24 billion in investment-grade bonds so far this week, according to IFR, a Thomson Reuters unit.

On the open market, the 10-year Treasury note yield rose 2.0 basis points at 2.327 percent after touching a near three-week trough of 2.304 percent earlier Wednesday.

The 30-year bond yield hovered at a near six-week low reached on Tuesday. It was up 1.6 basis point at 2.786 percent in late U.S. trading.

The two-year yield increased 1.6 basis points to 1.645 percent.

The yield spread between two-year and 10-year Treasuries was 68.0 basis points. Earlier in the session it contracted to 66.7 basis points, the tightest since November 2007, Reuters data showed.

Wednesday, Nov. 8 at 1520 EST (2020 GMT): Price US T BONDS DEC7 154-8/32 -0-14/32 10YR TNotes DEC7 125-56/256 -0-52/256 Price Current Net yield change (pct) (bps) Three-month bills 1.21 1.2306 0.013 Six-month bills 1.315 1.3422 0.010 Two-year note 99-182/256 1.6493 0.020 Three-year note 99-242/256 1.7688 0.014 Five-year note 99-248/256 2.0066 0.024 Seven-year note 100-92/256 2.1941 0.026 10-year note 99-80/256 2.3289 0.022 30-year bond 99-60/256 2.7879 0.018 YIELD CURVE Last (bps) Net change (bps) 10-year vs 2-year yield 67.80 -0.30 30-year vs 5-year yield 78.00 -0.75 DOLLAR SWAP SPREADS Last (bps) Net change (bps) U.S. 2-year dollar swap 19.25 -1.25 spread U.S. 3-year dollar swap 17.25 -3.00 spread U.S. 5-year dollar swap 6.75 -0.50 spread U.S. 10-year dollar swap -3.00 -0.50 spread U.S. 30-year dollar swap -26.50 -0.25 spread (Reporting by Richard Leong; Editing by Chizu Nomiyama)