TREASURIES-U.S. yields slightly lower on market relief after Fed minutes

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(Adds details, updates prices) By Davide Barbuscia NEW YORK, Aug 18 (Reuters) - U.S. Treasury yields ticked lower on Thursday on the back of Wednesday's release of the U.S. Federal Reserve's July meeting minutes that some investors saw as confirming a less aggressive stance in the central bank's fight against inflation. Fed officials on Thursday reiterated the need to keep raising borrowing rates to bring inflation under control, with St. Louis Fed President James Bullard saying he was leaning toward supporting a 75-basis-point interest rate hike in September. But minutes of the July 26-27 session did not indicate clear bias among officials for either a smaller rate increase of half a percentage point or a third consecutive 75 basis-point hike at the Sept. 20-21 meeting. "The market was relieved," said Eric Theoret, global macro strategist at Manulife Investment Management, who saw the minutes as suggesting rate hikes of 50 basis points in September, and 25 basis points twice later in the year, bringing the Fed funds rate to 3.50%. "To me the new glimmer is that they will probably be staying at 3.50% for longer and not cut rates quickly," he added. On Thursday benchmark 10-year Treasury yields were down slightly at 2.878% while two-year note yields were down by about six basis points on the day, at 3.235%. Fed funds futures traders on Thursday were pricing in a higher chance of a 50 basis point hike in September. Before the minutes were released on Wednesday, bets were skewed toward a 75 basis-point hike. They expect rates to peak at nearly 3.7% by March. The U.S. central bank has raised its benchmark overnight interest rate by 225 basis points since March to fight four decade-high inflation but its rapid tightening of financial conditions has led investors to weigh inflation concerns against recessionary fears, with markets fluctuating between the two narratives. Investors bet that policymakers will stop hiking rates early next year before easing monetary policy in the face of a looming economic slowdown. But some remain skeptical that a so-called 'Fed pivot' could happen anytime soon, partly because of recent indicators - such as strong industrial production in July and underlying retail sales growth - allaying concerns that the economy was in a recession. Data on Thursday also showed below-forecast and downwardly revised jobless claims, which could give the Fed further ammunition to deliver another hefty rate hike next month. "Pivot hopes were premature," Societe Generale said in a research note. "We now forecast cuts by 2024." August 18 Thursday 3:00PM New York / 1900 GMT Price Current Net Yield % Change (bps) Three-month bills 2.615 2.6688 0.028 Six-month bills 3.005 3.0935 -0.029 Two-year note 99-143/256 3.235 -0.060 Three-year note 99-168/256 3.2465 -0.030 Five-year note 98-186/256 3.0288 -0.020 Seven-year note 97-216/256 2.9706 -0.017 10-year note 98-228/256 2.8786 -0.016 20-year bond 100-48/256 3.3619 -0.016 30-year bond 97-76/256 3.1398 -0.006 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 34.75 2.50 spread U.S. 3-year dollar swap 12.00 0.75 spread U.S. 5-year dollar swap 3.00 -0.25 spread U.S. 10-year dollar swap 4.50 -0.25 spread U.S. 30-year dollar swap -32.50 -1.00 spread (Reporting by Davide Barbuscia; Editing by Alison Williams and Richard Chang)