NEW YORK, June 18 (Reuters) - U.S. Treasury yields were

lower on Thursday, a day after investors adopted a hawkish view

of Federal Reserve Chair Kevin Warsh's first meeting and sent

short-term yields to their highest level in 16 months.

The two-year yield, the most sensitive to Fed

rate-change expectations, was down 1 basis point on Thursday at

4.153%, after rising as high as 4.207% a day earlier. Investors

were pricing in a 69% chance of a rate hike by September's

meeting, LSEG data show.

The 10-year yield, more tied to global

macroeconomic conditions, was down 3 basis points at 4.429%

after oil prices retreated on the latest signs that the war in

Iran is likely coming to an end, and that more crude is exiting

the Strait of Hormuz after months of very limited flows.

Brent crude, the global benchmark, was down 2.1% at

$77.83 a barrel.

Falling energy prices on Thursday "eased forward

inflationary concerns and led to meaningful declines in

longer-dated Treasury yields", said Ian Lyngen, head of U.S.

rates strategy at BMO Capital Markets.

"While we're less convinced than the 29 bp of hikes

currently priced in through the October 28 FOMC meeting, we are

on board with the notion that there should be symmetry in the

policy outlook from the present level."

Warsh, who took over as Fed chief last month, made an

immediate imprint in organizing a unanimous consensus around a

stripped-down policy statement that jettisoned any forward

guidance on what actions the central bank might take in the near

term.

However new quarterly projections, eschewed by Warsh

himself, showed nine of 19 policymakers now anticipate a rate

hike by the end of 2026.

Later on Thursday, investors will watch closely as the

government auctions 5-year TIPS. Lyngen said the rise in real,

inflation-adjusted market yields over the past month should help

support demand for the securities after an up-and-down response

from investors recently.

U.S. data out Thursday continued to show strength, with

initial claims for state unemployment benefits dropping 4,000 to

a seasonally adjusted 226,000 for the week ended June 13, the

Labor Department said on Thursday.

Economists polled by Reuters had forecast 225,000 claims for

the latest week.

Across the Atlantic, the Bank of England kept interest rates

on hold at 3.75% in June, as it has since the start of the

U.S.-Iran war, judging it would be premature to raise rates now

given uncertainty about the strength of increased inflation

pressures.

Meanwhile the European Central Bank's chief economist Philip

Lane said on Thursday the euro zone's economy may now be able to

withstand slightly higher interest rates without losing steam.

Lane said the upper end of the neutral range for the ECB's

benchmark rate, which neither stimulates nor curbs growth, has

risen from 2.25% to 2.50%, based on bond market prices.

The ECB raised its benchmark deposit rate to 2.25% from 2%

last week and left the door open to more tightening to prevent a

surge in fuel costs caused by the Iran war from spreading to

other prices.