TREASURIES-Yields fall in light post-holiday trading volume

 (Adds quote, data outlook, updates prices)
    By Karen Brettell
    NEW YORK, Jan 2 (Reuters) - U.S. Treasury yields fell on
Thursday in light post-holiday trading, after longer-dated debt
posted its best yearly returns since 2014.
    Yields fell even after China's central bank said on
Wednesday it was cutting the amount of cash that all banks must
hold as reserves, releasing around 800 billion yuan ($114.91
billion) in funds to shore up the slowing economy.
    Trading volumes were light, with many traders and investors
away after Wednesday's New Year holiday.
    The next major focus for the market will be manufacturing
data on Friday, which will be watched for any indications of
improvement after the United States and China last month agreed
to the first phase of a trade deal.
    It is "a number that people have eyes on," said Tom Simons,
a money market economist at Jefferies in New York. "It's
definitely a theme here in Q1."
    Longer-dated debt gained last year on concerns about low
inflation and weak growth as the Federal Reserve cut interest
rates three times during the year. Demand for yield, with many
bonds in Europe and Japan trading in negative territory, added
to its outperformance.
    Bonds gave up some of their gains in December, however, on
optimism the United States and China would de-escalate their
trade war, which has been blamed for slowing global growth.
    Thirty-year bonds returned 16.34% last year,
according to Bank of America Merrill Lynch. Benchmark 10-year
notes returned 8.91% for the year.
    The 10-year yields were last at 1.88%. They are
holding below the three-month high of 1.97% reached on Nov. 7,
but are up from 1.69% at the beginning of December and a
three-year low of 1.43% reached on Sept. 3.
    The yield curve between two-year and 10-year notes
 held just below 36 basis point level reached on
Tuesday, which was the steepest since October 2018.
    The cost to borrow overnight in the repurchase agreement
market rose to 1.70% on Monday, after dropping as low
as 1.40% on Friday as investors sought out Treasuries for
year-end portfolio rebalancing.
    The Fed’s daily liquidity operations provided the market
with adequate funding to get through the crucial year-end
period, when there is often a funding squeeze.
  Jan. 2 Thursday 2:02 p.m. New York/1902 GMT
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             1.505        1.5359    -0.020
 Six-month bills               1.535        1.5727    -0.010
 Two-year note                 100-24/256   1.577     0.016
 Three-year note               100-18/256   1.6004    0.008
 Five-year note                100-100/256  1.6681    -0.015
 Seven-year note               99-180/256   1.7954    -0.028
 10-year note                  98-212/256   1.8806    -0.029
 30-year bond                  100-160/256  2.3457    -0.031
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         9.50        -2.25    
 U.S. 3-year dollar swap         5.75        -2.00    
 U.S. 5-year dollar swap         2.25        -1.25    
 U.S. 10-year dollar swap       -3.50        -0.50    
 U.S. 30-year dollar swap      -31.00        -0.75    

 (Editing by David Gregorio and Tom Brown)