* Focus on next week’s auction
* ECB agrees to reduce stimulus-sources
* Fed’s Dudley was less hawkish, but helps yields (Adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 8 (Reuters) - U.S. long-dated Treasury yields were little changed to slightly lower on Friday, as investors squared positions ahead of next week’s auction of government debt.
Treasury will auction $56 billion in debt: $24 billion in U.S. three-year notes, $20 billion in 10-year notes, and $12 billion in 30-year bonds.
“The key question for the auctions this month is whether investors will be keen to buy in at the 2017-year lows,” analysts at TD Securities said, noting that the U.S. 10-year yield stands about 20 basis points below August’s auction level.
Yields overall have declined over the last few weeks given geopolitical uncertainty and some softening of U.S. economic data.
Earlier on Friday, U.S. 10-year note and 30-year bond yields rose off 10-month lows, in line with gains in Europe, after Reuters reported that European Central Bank policymakers at Thursday’s meeting discussed reducing stimulus for the euro zone.
New York Fed President William Dudley’s comments overnight also helped push U.S. yields higher, even if they were less hawkish than expected, analysts said. Dudley, a voting member of the Federal Reserve, reinforced the Fed’s general expectation that an inflation rebound was around the corner, allowing it to continue raising rates before too long.
After Dudley, the focus shifted to the ECB.
ECB officials discussed four options in paring back monetary easing policy at Thursday’s meeting, Reuters reported, such as cutting asset purchases to 40 billion euros or 20 billion euros a month, with extension options including 6 months or 9 months, two sources with direct knowledge of the discussion said.
As a result, bond yields in Europe rose, with the peripheral markets - Italy, Spain, Portugal - getting the brunt of the selling. Germany’s 10-year bond yield rose to 0.327 percent , having fallen to its lowest since late June.
Jim Vogel, interest rates strategist at FTN Financial in Memphis, Tennessee, said Treasuries moved in tandem with Europe in the absence of U.S. economic data.
“The ECB story’s first impact was with peripheral yields so that Spain, Portugal and Italy’s yields widened quite quickly on the idea that the ECB will buy fewer bonds than people had been thinking,” said Vogel.
In late trading, benchmark 10-year Treasury yields slipped to 2.055 percent, from 2.061 percent late on Thursday. Ten-year yields earlier dropped to 2.016 percent, a 10-month low.
U.S. 30-year bond yields were down at 2.673 percent, from 2.678 percent the previous session. Thirty-year yields earlier dropped to a 10-month trough of 2.636 percent. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler and Rosalba O‘Brien)