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TREASURIES-U.S. yield curve flattens, spread over bunds widens to 17-year high

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Oct 18 (Reuters) - The U.S. Treasury yield curve flattened on Wednesday with the difference in yield between U.S. 5-year and 30-year Treasuries falling to the lowest since November 2007 and the spread between 2-year and 10-year Treasuries hitting the lowest since August 2016.

Yields on the 2-year note rose to 1.571 percent, the highest since November 2007. In addition to tightening the spread with longer-dated maturities, the spread between U.S. 2-year government debt and its German counterpart rose to its highest level since 2000.

Analysts said expectations for tighter global monetary policy has pushed bond investors to sell shorter-dated Treasuries, driving yields to years-long highs.

The initial move higher in yields came in overnight U.S. trading with analysts pointing to a speech by Chinese President Xi Jinping to the Communist Party Congress and overhang from hawkish rhetoric by the U.S. Federal Reserve and signs of progress in Washington.

Short-dated notes added to selling after comments from New York Fed President William Dudley, who sounded supportive of Fed Chair Janet Yellen’s comments over the weekend that the central bank was likely to continue its path of U.S. interest rate increases.

“The general tone from Fed speakers this week has been more on the hawkish side,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “That and the global removal of accommodation is something markets have noticed.”

Rajappa also said that U.S. yields were moving up in concert with European government bond yields. Expectations have risen that the European Central Bank, which meets next Thursday, could signal a prolonged rollback of its monetary stimulus.

Reuters reported last week that policymakers are broadly in agreement about extending asset purchases at a lower volume, with views converging on a nine-month extension.

Benchmark 10-year Treasury notes were last down 12/32 in price to yield 2.341 percent. Yields had earlier climbed to a six-day high.

The 30-year bond dropped 28/32 in price to yield 2.847 percent, having earlier touched a five-day high. (Reporting by Dion Rabouin; Editing by Meredith Mazzilli)

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