(Recasts, updates yields, adds comments from analyst and Pelosi) By Karen Pierog CHICAGO, Aug 18 (Reuters) - U.S. Treasury yields drifted lower on Tuesday as the market looked ahead to an auction of 20-year bonds and the release of Federal Reserve meeting minutes. The benchmark 10-year yield was last down 1.3 basis points at 0.6704%. Gennadiy Goldberg, an interest rate strategist at TD Securities in New York, said the market was in a "grinding rally" as it awaited Wednesday's $25 billion bond auction and the minutes from the Fed's July meeting. "The market is hoping for a good 20-year auction tomorrow, probably thinking the Fed remains dovish in the minutes as well," Goldberg said. Collin Martin, fixed income strategist at the Schwab Center for Financial Research in New York, said Treasuries were range bound due to "summer doldrums" and a political stalemate over a new round of federal aid to bolster the coronavirus-hit economy. U.S. House of Representatives Speaker Nancy Pelosi said on Tuesday that Democrats in Congress are willing to cut their relief bill in half to get an agreement on new legislation with the White House and Republicans. After selling Treasuries for three straight months, foreigners became buyers of the government's notes and bonds in June, according to Treasury Department data on Monday. "There could be a pick up in foreign demand as people are still looking for high-quality, liquid investments in a world where yields are still very, very low," Martin said. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, which is viewed as an indicator of economic expectations, was last at 52.40 basis points, about a basis point lower than at Monday's close. August 18 Tuesday 1:57PM New York / 1857 GMT Price Current Net Yield % Change (bps) Three-month bills 0.105 0.1065 -0.002 Six-month bills 0.12 0.1217 0.000 Two-year note 99-246/256 0.1451 -0.006 Three-year note 99-220/256 0.1722 -0.011 Five-year note 99-220/256 0.2786 -0.006 Seven-year note 99-80/256 0.4757 -0.007 10-year note 99-144/256 0.6704 -0.013 20-year bond 99-132/256 1.1525 -0.025 30-year bond 99-92/256 1.4012 -0.023 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.50 0.00 spread U.S. 3-year dollar swap 6.00 0.25 spread U.S. 5-year dollar swap 4.50 -0.50 spread U.S. 10-year dollar swap -1.75 -0.25 spread U.S. 30-year dollar swap -41.25 0.25 spread (Reporting by Karen Pierog; Editing by Will Dunham)
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