TREASURIES-US yields mixed after 10-year's steep climb, but uptrend intact

(Updates prices throughout, adds analyst comments, paragraphs 4 and 7-8) * U.S. consumer confidence, new home sales fall * U.S. yield curve reduces inversion * U.S. two-year note auction shows decent demand By Gertrude Chavez-Dreyfuss NEW YORK, Sept 26 (Reuters) - U.S. Treasury yields were mixed on Tuesday, with the 10-year yield pulling back from 16-year peaks touched the previous session and the yield curve flattening a bit, as investors slowed the pace of selling bonds and re-assessed how far rates have gone. The outlook for U.S. yields overall remained tilted to the upside as the world's largest economy has performed better than expected despite aggressive tightening from the Federal Reserve over the last year and a half. After hitting its highest since October 2007, the 10-year yield was little changed at 4.549%. "With this narrative of a more hawkish Fed at last week's FOMC (Federal Open market Committee) announcement, it seems like yields are likely to hang out here and could push a little bit higher based on a near-term set of risks," said Zachary Griffiths, senior investment grade strategist at CreditSights in Charlotte, North Carolina. The U.S. yield curve, measuring the gap between two-year and 10-year yields, flattened or slightly increased its inversion on Tuesday, though the overall trend remained that of steepening. The steepening move suggested that investors are pricing in the fact that the Fed is nearing the end of its tightening cycle and the economy at some point could resume expanding after a mild slowdown. The curve was last at -61.9 basis points (bps), after steepening to -58.10 bps on Monday. That was the least inverted since May. "We're not quite convinced we're headed to 5% in the 10-year," Griffiths said. "Right now, we're sticking to our call for the Fed to be done hiking in 2023 and shifting to a pause in 2024. Overall, it's going to be centered around inflation, which we believe will continue to move lower in the next three to six months." On Tuesday, the rate futures market priced in a 20% chance of a rate hike in November and a 38% probability of tightening in December, according to CME's FedWatch. A week ago, that was 29.4% and 41%, respectively. U.S. data on Tuesday was mixed and analysts pointed out that on balance, the reports showed an economy outperforming expectations, which for some should boost yields even higher. "The perception of the economy has shifted," said Stan Shipley, managing director and macro research analyst at Evercore ISI in New York. "It went from certainty of a near-term recession towards a 'no landing' or 'soft landing' for the economy. The economic data remains firmer than expected, though several drags are present." U.S. annual home price growth accelerated for a second straight month in July, with housing prices increasing 4.6% on a year-over-year basis, up from a revised 3.2% increase in the prior month, the Federal Housing Finance Agency (FHFA) said. Sales of new U.S. single-family homes, however, fell more than expected in August, with new home sales plunging 8.7% to a seasonally adjusted annual rate of 675,000 units last month, data showed. U.S. consumer confidence also slid for a second consecutive month in September, a survey showed on Tuesday, with the index dropping to 103.0 this month from an upwardly revised 108.7 in August. The yield on the 30-year Treasury bond was up 3.1 bps at 4.690%. The two-year U.S. Treasury yield, which typically reflects interest rate expectations, was down 0.4 bps at 5.127%. Tuesday's auction of U.S. two-year notes showed decent demand, with the high yield at 5.085%, in line with the expected rate at the deadline. The bid-to-cover ratio, a gauge of demand, was 2.73, less than the 2.94 in August, which Action Economics said was largely due to the $3 billion increase in volume. That ratio, however, was in line with the 2.72 average for the past year. September 26 Tuesday 3:46PM New York / 1946 GMT Price Current Net Yield % Change (bps) Three-month bills 5.34 5.4891 0.008 Six-month bills 5.32 5.5582 0.005 Two-year note 99-194/256 5.1315 0.000 Three-year note 99-108/256 4.8359 0.000 Five-year note 98-238/256 4.6197 0.000 Seven-year note 97-32/256 4.6142 0.003 10-year note 94-164/256 4.554 0.012 20-year bond 93-184/256 4.8714 0.024 30-year bond 90-244/256 4.6907 0.032 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 0.00 0.00 spread U.S. 3-year dollar swap 0.00 0.00 spread U.S. 5-year dollar swap 0.00 0.00 spread U.S. 10-year dollar swap 0.00 0.00 spread U.S. 30-year dollar swap 0.00 0.00 spread (Reporting by Gertrude Chavez-Dreyfuss; editing by Rami Ayyub)