TREASURIES-Yields briefly dip to two-year lows in Asia

By Masayuki Kitano

TOKYO, Nov 16 (Reuters) - U.S. 10-year Treasury yields hit two-year lows in Asian trading on Friday, as Treasuries extended gains on worries about financial institutions' losses from credit market turmoil.

The benchmark 10-year yield fell to 4.137 percent <US10YT=RR> according to Reuters data, the lowest since late 2005, and the two-year yield dipped to 3.308 percent <US2YT=RR>, the lowest since early 2005.

But yields later rose as Treasuries trimmed their gains.

Treasuries have been drawing strength from safe-haven bids and growing expectations for the Federal Reserve to keep cutting interest rates into next year, said Yasutoshi Nagai, chief economist for Daiwa Securities SMBC's fixed-income, currency and commodities research department.

"Market players think the Fed will almost definitely lower interest rates in December, and there are also some expectations for additional rate cuts in January and March," Nagai said.

Treasuries have been bought to levels that are difficult to explain purely by economic fundamentals, Nagai said, adding that it may be hard for them to rally much further since the market is already bracing for multiple Fed rate cuts.

Interest rate futures are now predicting a roughly 90 percent chance that the Fed will cut rates by 25 basis points to 4.25 percent at the next policy meeting in December.

The 10-year note fell 5.5/32 in price to yield 4.161 percent <US10YT=RR> as of 0333 GMT.