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TREASURIES-U.S. 10-year yield drops to three-week low as weak data fans growth fears

By Gertrude Chavez-Dreyfuss NEW YORK, May 19 (Reuters) - U.S. Treasury yields fell on Thursday, with those on benchmark 10-year notes sliding to three-week lows, as continued softness in U.S. economic data supported growth concerns amid an aggressive path of monetary tightening by the Federal Reserve. The move lower in yields was in line with weakness in U.S. stocks. U.S. 10-year yields dropped to 2.772%, the lowest since late April, and was last down 7 basis points at 2.815%. U.S. 30-year yields were also lower on the day, declining to a one-week trough of 2.975%. They were last at 3.019%, down 5 bps. Thursday's data showed another weak batch of economic numbers. Initial jobless claims unexpectedly rose last week, reaching a four month-high of 218,000 for the week ended May 14, the highest level since January. The number likely suggested slowing demand for labor amid tightening financial conditions. That said, the same report showed the labor market remaining tight, with continuing claims at their lowest since the end of 1969. At the same time, a separate report from the Philadelphia Fed on Thursday showed its business conditions index dropped to a reading of 2.6 in May from 17.6 in April. U.S. existing home sales also fell to their lowest in nearly two years in April, as house prices jumped to a record high amid a persistent lack of inventory. "These releases' aggregate influence is a weight upon Treasury yields and the dollar. We expect job growth to slow to 300,000 in May with downside risk," said Stan Shipley, fixed income strategist at Evercore ISI in New York. He added that the drop in the Philadelphia Fed business index "suggests slower sequential growth." U.S. two-year yields were also weaker on the day, down 5.5 bps at 2.603%. Kansas City Fed President Esther George, a voter on this year's Federal Open Market Committee on Thursday reinforced expectations of multiple 50 basis-point hikes at upcoming Fed meetings. She, however, downplayed the idea that the Fed might shift to larger rate increases. "We are good at 50 basis points right now, and I would have to see something very different to say we need to go further than that," George said in an interview on CNBC. U.S. rate futures on Thursday have priced a fed funds rate of 2.768%, compared with the current 0.83% level. The market has also factored in cumulative rate increases of 193 bps in 2022. May 19 Thursday 10:43AM New York / 1443 GMT Price Current Net Yield % Change (bps) Three-month bills 1.0275 1.0445 0.005 Six-month bills 1.4725 1.5041 -0.028 Two-year note 99-203/256 2.6094 -0.058 Three-year note 99-240/256 2.7719 -0.066 Five-year note 99-166/256 2.8265 -0.065 Seven-year note 100-42/256 2.8486 -0.066 10-year note 100-128/256 2.8172 -0.067 20-year bond 100-168/256 3.2052 -0.051 30-year bond 97-44/256 3.019 -0.052 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 28.75 1.00 spread U.S. 3-year dollar swap 13.00 -0.25 spread U.S. 5-year dollar swap 3.25 0.25 spread U.S. 10-year dollar swap 6.00 0.25 spread U.S. 30-year dollar swap -27.00 0.00 spread (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis)