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REFILE-TREASURIES-U.S. yields slide on growing global slowdown worries

(Refiles to fix 2nd bullet to next year instead of last year) * Since 3-1/2-year peak last week, 10-year yield has fallen 25 bps * Fed's Williams says inflation seen declining next year * NY factory activity slumps in May * Investors back buying Treasuries as shorts decline * U.S. inflation breakevens moderate amid aggressive Fed action By Gertrude Chavez-Dreyfuss NEW YORK, May 16 (Reuters) - U.S. Treasury yields eased on Monday, as mounting global growth concerns deepened after unexpectedly weak economic data from China and a steep drop in New York state's factory activity. Since hitting its highest in roughly 3-1/2 years early last week, the benchmark 10-year yield has fallen about 25 basis points, highlighting investor uncertainty in the wake of aggressive monetary tightening from the Federal Reserve. Fed Chair Jerome Powell earlier signaled plans to raise interest rates by half a percentage point at the next two policy meetings, a scenario which New York Fed President John Williams said makes sense. The Fed earlier this month raised its benchmark overnight interest rate by 50 basis points for a second time and by the most in a single instance - half a percentage point - in 22 years. Williams, a voting member at this year's Federal Open Market Committee, also said on Monday he expects inflation to decline next year. "Price action in Treasuries, commodities and currencies are showing you the first signs that potentially worries about future growth are beginning to be the more dominant driver," said Huw Roberts, director of analytics at Quant Insight in London. Fears about a global slowdown were in focus on Monday after China's poor data. China's economic activity contracted sharply in April as COVID-19 lockdowns took a heavy toll on consumption, industrial production and employment. April retail sales plunged 11.1% on the year, almost twice the fall forecast, while industrial output dropped 2.9% when analysts had looked for a slight increase. In the United States, factory activity in New York state slumped in May for the second time this year amid a collapse in new orders and shipments. The New York Fed's "Empire State" index on current business conditions tumbled 36.2 points to a reading of -11.6 this month. A reading below zero signals a contraction in the New York manufacturing sector. In afternoon trading, the yield on 10-year Treasuries slid 5.1 basis points to 2.882%, while the 30-year bond yield was little changed at 3.091%. Given how much U.S. 10-year Treasuries have risen the last few weeks, culminating in a 3-1/2-year peak last week, "a powerful re-rally in rates was not totally unexpected," said Steven Zeng, U.S. rates strategist at Deutsche Bank. He noted that U.S. 10-year Treasuries have cheapened based on the bank's model, by about 15 basis points, driven in part by "stretched positioning." After last week, however, positioning has become "more balanced" after shorts were liquidated. Net shorts on U.S. 10-year note futures fell to 85,972 contracts in the week ending May 10, from 147,537 contracts a week earlier, according to Commodity Futures Trading Commission data. Last week's 10-year note short positioning was the lowest since October. Net shorts were also trimmed in the shorter part of the U.S. government debt curve, but to a smaller extent. On the front end of the curve, U.S. two-year yields, which are sensitive to Fed rate expectations, fell 2 basis points to 2.576%. The yield curve has also flattened, with the spread between U.S. two and 10-year yields narrowing to 30.6 basis points . Inflation expectations have also moderated in the wake of the Fed's steep rate hikes. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) slipped to 3.045% from 3.076% late on Friday. U.S 10-year breakeven rates slid to 2.748%, from 2.784% on Friday. May 16 Monday 3:07PM New York / 1907 GMT Price Current Net Yield % Change (bps) Three-month bills 1.005 1.0214 0.033 Six-month bills 1.445 1.4756 0.036 Two-year note 99-220/256 2.5739 -0.023 Three-year note 100-2/256 2.7472 -0.047 Five-year note 99-172/256 2.8213 -0.065 Seven-year note 99-240/256 2.8848 -0.062 10-year note 99-240/256 2.8822 -0.051 20-year bond 86-124/256 3.3128 -0.013 30-year bond 95-204/256 3.091 -0.001 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 27.50 -0.50 spread U.S. 3-year dollar swap 12.25 -1.00 spread U.S. 5-year dollar swap 4.00 -1.00 spread U.S. 10-year dollar swap 6.50 -1.00 spread U.S. 30-year dollar swap -25.50 -1.25 spread (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis)