LONDON, July 25 (Reuters) - U.S. Treasury yields fell

for a third day on Thursday as investors piled into

shorter-dated bonds in anticipation of imminent Federal Reserve

rate cuts, while a global sell-off in tech stocks and other risk

assets fanned a push into safe-haven assets.

The gap between two-year and 10-year

Treasury yields hit its narrowest since October 2023 and was

just a whisker below where it was in July 2022, as the drop in

short-dated yields outstripped that of longer-dated notes.

This phenomenon, known as a steepening of the yield curve,

typically takes place when investors believe interest rates are

about to fall and the economy is likely to slow.

A survey on Wednesday showed U.S. business activity hit a

27-month high in July, but companies' pricing power is

diminishing as inflation has subsided.

U.S. two-year yields were last down 7 basis points at 4.34%,

while benchmark 10-year notes were yielding 4.237%, down 5 bps

on the day, leaving the curve inverted, with short-dated yields

still above longer-dated ones.

"Bear in mind that in recent cycles, a re-steepening back

out of inversion has occurred shortly before a recession, so

that's one to keep an eye on, given how it's moved ahead of the

past few downturns," Deutsche Bank strategist Jim Reid said.

Geopolitics, including a turbulent race for the White House,

have added to investor risk aversion this month.

Tepid results from the first of the so-called "Magnificent

Seven" - the seven most valuable U.S. stocks that include the

likes of Apple ( AAPL ), Amazon and Nvidia ( NVDA ) -

mean investors are questioning whether their lofty valuations

are justified.

Futures markets fully expect a quarter-point cut from the

Fed by September. Two-year Treasuries - which are more sensitive

to shifts in monetary policy - have already fallen by 35 basis

points in this month alone, to around 4.37% and are well below

April's five-month high of 5.045%.

Adding momentum to the flow of capital into fixed income has

been the aggressive unwinding of holdings of expensive

technology stocks, which have hit record highs this year driven

by the boom in AI, and of other assets that tend to perform

poorly when the economy slows, such as industrial commodities,

and the dollar itself.

Longer-dated U.S. bonds came under pressure last week, after

Republican presidential candidate Donald Trump surged ahead in

the opinion polls following an assassination attempt on July 13.

The prospect of a Trump administration aggravated concern

among investors of a surge in spending, at a time when the U.S.

fiscal position is looking increasingly precarious.

Democrat President Joe Biden announced his withdrawal from

the presidential campaign at the weekend, paving the way for

Vice President Kamala Harris to be the party's nominee, which

has seen Trump dip back in the polls.

The Treasury auctioned $70 billion worth of five-year notes

on Wednesday, a day after a two-year sale of the same size that

garnered strong demand.

ING said the five-year sale was not as successful as the

shorter-dated auction, given that maturity commands a lower

yield - at around 4.085% - and is therefore pricier.

"We should also not forget the huge sizes the market is

being asked to take down," ING strategists led by Americas

regional research head Padraig Garvey said.

"It's been a day of risk-off, higher volatility and widening

pressure on credit spreads. We think this continues, as it feels

like the path of least resistance as we continue to digest the

U.S. political backdrop, interlaced by predominately weak or

weakening macro data," they said.