(Corrects 2nd bullet to flattens instead of steepens.) * U.S. 10-year, 20-year, 30-year fall to two-week lows * U.S. yield curve flattens for 2nd day * U.S. overnight repo rate goes negative lowest since late March By Gertrude Chavez-Dreyfuss NEW YORK, May 24 (Reuters) - U.S. Treasury long-dated yields fell to two-week lows on Monday, after a few Federal Reserve officials affirmed their support to keep monetary policy accommodative for some time, dampening recent expectations the Fed would reduce bond purchases or flag rate hikes sooner than what it has indicated to the market. The U.S. yield curve flattened for a second straight session on Monday, reflecting the Fed's dovish stance. The spread between U.S. 2-year and 10-year yields slid to 145.20 basis points. Fed Board Governor Lael Brainard, St. Louis Fed President James Bullard, and Atlanta Fed President Raphael Bostic in separate remarks all backed the U.S. central bank's current easy monetary policy view. Brainard, for one, said she sees inflation pressures fading, and expects that spikes in prices associated with supply bottlenecks and the reopening of the economy to "subside over time," in line with what Fed Chairman Jerome Powell has said repeatedly over recent weeks. "The Fed is clearly thinking that the inflation we're getting is just temporary and by the time we hit Labor Day, inflation is going to head lower," said Stan Shipley, fixed income strategist at Evercore ISI in New York. "That's why the readings we're going to get for May, June and July are not going to matter a lot on the inflation side and Fed policy." In afternoon trading, the U.S. 10-year Treasury yield fell to 1.604% from 1.632% late on Friday. Earlier in the session, 10-year yields fell below 1.60%, the lowest level in roughly two weeks. U.S. 30-year yields were down at 2.3% from Friday's 2.233%. They fell as low as 2.2.287%, the lowest since May 10. TD Securities senior rates strategist Gennadiy Goldberg also pointed to investor worries about potential tapering by the Fed of its monthly bond purchases. In Fed minutes last week, several policymakers said a discussion about reducing the pace of asset purchases would be appropriate "at some point" if the economic recovery continues to gain momentum. "The taper in 2013 didn't go as well as they would have liked. ... So they may do a two-part taper where they taper mortgages and then Treasuries or they convert mortgage buying into Treasury buying," said Jake Remley, principal and senior portfolio manager, at Income Research + Management. "They have other options to announce a taper across the board if they want to, for example, take their foot off the gas on the housing market, which is showing a lot of signs of …starting to have affordability issues with how hot home prices have been over the last six to nine months," he added. The market is also prepping for this week's auction of $183 billion in U.S. 2-year, 5-year and 7-year notes. In money markets, the overnight repo rate dropped below 0% to -0.1%, the lowest level since late March. Excess cash in the financial system, as a result of the Fed's asset purchases, has weighed on short-term rates. May 24 Monday 2:49PM New York / 1849 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0125 0.0127 0.008 Six-month bills 0.0275 0.0279 0.008 Two-year note 99-242/256 0.1534 -0.004 Three-year note 99-200/256 0.324 -0.008 Five-year note 99-184/256 0.8083 -0.020 Seven-year note 99-228/256 1.2665 -0.021 10-year note 100-36/256 1.6097 -0.022 20-year bond 100-148/256 2.214 -0.030 30-year bond 101-128/256 2.3054 -0.028 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.75 -0.50 spread U.S. 3-year dollar swap 11.25 -0.50 spread U.S. 5-year dollar swap 8.50 0.00 spread U.S. 10-year dollar swap -3.25 -0.25 spread U.S. 30-year dollar swap -29.75 0.00 spread (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Ritvik Carvalho in London; Editing by Kirsten Donovan and Leslie Adler)
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