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TREASURIES-Yield curve flatter ahead of Fed statement

Ross Kerber

By Ross Kerber Sept 16 (Reuters) - Longer-term U.S. Treasury yields moved lower on Wednesday, flattening the yield curve, as investors prepared to hear a dovish message from the U.S. Federal Reserve. The benchmark 10-year yield was down 1.6 basis points at 0.6625% in morning trading. The Fed is expected to wrap up its latest policy meeting with somewhat rosier economic forecasts but a renewed pledge to keep interest rates low for as long as needed to get the U.S. economy out of its deepest downturn in decades. "The market expects very little upward pressure on Treasury yields" said Justin Hoogendoorn, head of fixed income for Piper Sandler. U.S. consumer spending appeared to slow in August as extended unemployment benefits were cut for millions of Americans, offering more evidence that the economic recovery from the COVID-19 recession was faltering. Core retail sales, which correspond most closely with the consumer spending component of gross domestic product, fell 0.1% last month after a downwardly revised 0.9% increase in July, the Commerce Department said on Wednesday. The yield on the 10-year note dipped as low as 0.656% after the data was announced before recovering somewhat. But Wall Street's main indexes opened higher Wednesday as investors looked for a lower-for-longer outlook on rates from the Fed, and on upbeat quarterly results from FedEx Corp . A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 53 basis points, about a basis point lower than Tuesday's close but well above its level of 33 basis points reached on July 24. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down less than a basis point at 0.135% in morning trading. September 16 Wednesday 9:36AM New York / 1336 GMT Price Current Net Yield % Change (bps) Three-month bills 0.115 0.1166 0.005 Six-month bills 0.115 0.1167 0.000 Two-year note 99-251/256 0.135 -0.004 Three-year note 99-232/256 0.1564 -0.006 Five-year note 99-242/256 0.2611 -0.008 Seven-year note 100-94/256 0.4463 -0.015 10-year note 99-164/256 0.6625 -0.016 20-year bond 98-224/256 1.1886 -0.020 30-year bond 99-44/256 1.409 -0.021 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.00 0.00 spread U.S. 3-year dollar swap 7.00 0.25 spread U.S. 5-year dollar swap 5.75 0.00 spread U.S. 10-year dollar swap 0.25 -0.25 spread U.S. 30-year dollar swap -36.50 -0.25 spread (Reporting by Ross Kerber in Boston Editing by Nick Zieminski)