TREASURIES-U.S. yields pull back as markets anticipate slower Fed rate hikes

(Adds comment, bullets; updates prices) * U.S. 10-year yields has peaked for now -analyst * U.S. two-year/10-year yield curve deepens inversion * Investors looking to next week's CPI, FOMC meeting By Gertrude Chavez-Dreyfuss NEW YORK, Dec 6 (Reuters) - U.S. Treasury yields fell on Tuesday in largely thin trading, with no major economic data on the calendar as investors prepared for a slowdown in the pace of the Federal Reserve's tightening cycle. Since a 15-year high touched on Oct. 21, the benchmark 10-year yield has dropped nearly 80 basis points (bps). It was last down 8.4 bps at 3.515%. The U.S. two-year yield, which typically moves in lock-step with interest rate expectations, has fallen nearly 53 bps since more than a 15-year peak hit on Nov. 4. It was last down 4.2 bps at 4.352%. But a strong U.S. non-farm payrolls for November and solid numbers on the services sector and factory activity have backed the notion that while the Fed may ease the pace of hiking, rates will remain higher for longer. "The Fed is slowing down... and rates have been trending down on that expectation. All of that could change with the ... the press conference next week," said Kim Rupert, managing director for fixed income analysis at Action Economics in San Francisco, referring to the Fed's interest rate forecast. "I don't think that the median rate estimates are going to change...the outlook on the policy path." Rupert also believes the U.S. 10-year yield has peaked for now. The U.S. two-year/10-year yield curve extended its inversion on Tuesday. The gap between the two yields deepened by as much as -84 bps, the most in two weeks, and was last at -83.60 bps. An inversion of this yield curve typically precedes recession. Investors are already looking forward to next week's heavy event calendar, starting with release of November's consumer price index data and the Federal Open Market Committee policy meeting. BMO Capital Markets, in a research note, indicated that the end of the tightening cycle is not that far off. It remains in the camp expecting the final policy adjustment to be a 25-bps hike in March next year. "Evidence of further moderation in inflation will be enough to stop the Fed from hiking, but it will need to be signs of a wobbling labor market that inspire the conversation about policy easing," wrote BMO in its note. The Fed is widely expected to raise rates by 50 bps this month, after multiple hikes of 75 bps. In afternoon trading, the yield on the 30-year Treasury bonds was down 8.9 bps at 3.527%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.4286%, down from Monday's 2.522% close. The 10-year TIPS breakeven rate was last at 1.201%, down 2.6 bps from Monday's level. December 6 Tuesday 3:07PM New York / 2007 GMT Price Current Net Yield % Change (bps) Three-month bills 4.25 4.3563 -0.015 Six-month bills 4.565 4.7377 -0.013 Two-year note 100-69/256 4.356 -0.038 Three-year note 101-32/256 4.089 -0.040 Five-year note 100-162/256 3.7344 -0.059 Seven-year note 101-102/256 3.6462 -0.074 10-year note 105-20/256 3.515 -0.084 20-year bond 103-84/256 3.7611 -0.073 30-year bond 108-184/256 3.5261 -0.090 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 30.75 0.25 spread U.S. 3-year dollar swap 10.25 0.00 spread U.S. 5-year dollar swap 2.00 0.00 spread U.S. 10-year dollar swap -5.25 -1.50 spread U.S. 30-year dollar swap -41.25 -1.75 spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski and Cynthia Osterman)