* US 2/10 yield-curve bull steepens

* US rate futures shift from pricing hikes to modest

easing

* US notes, bonds headed for monthly increase

By Gertrude Chavez-Dreyfuss

NEW YORK, March 31 (Reuters) - U.S. Treasuries ended the

first quarter higher on Tuesday, rebounding after a month of

heavy selling, as a report suggesting possible de-escalation in

the Middle East boosted demand for government debt.

In late morning trading, the benchmark 10-year yield slipped

2.2 basis points to 4.321%, falling for a second

straight session. For the month of March, however, 10-year

yields surged 35 bps, putting them on track for their largest

monthly rise since December.

On the front end of the curve, U.S. two-year yields, which

reflect interest rate expectations, were down 3.9 bps at 3.789%

US2YT=RR. But for the month, two-year yields have climbed 41

bps, their biggest monthly increase since October 2024.

The Wall Street Journal reported on Tuesday that President

Donald Trump was willing to halt the military campaign against

Iran despite a largely closed Strait of Hormuz. Citing

administration officials, the report said Trump was willing to

move away from a complex operation and reopen the vital strait -

a flashpoint for oil prices and global trade - at a later date.

Trump threatened on Monday to obliterate Iran's energy plants if

it does not agree to a peace deal and open the strait, which has

effectively been blocked by Tehran.

"There's a growing feeling that the U.S. is backing off on

taking over the Strait of Hormuz and that the Trump

administration is trying to tone down the rhetoric on Iran,"

said Tom di Galoma, managing director for global rates trading

at Mischler Financial.

"The markets like that and that's why we are rallying."

In other maturities, U.S. 30-year yields were little changed

at 4.912%. But on a monthly basis, the long bond

yield has risen 28 bps, its largest increase since December

2024.

The yield curve was steepened on Tuesday, with the gap

between two-year and 10-year yields at 52.70 bps,

compared with 51.80 bps late on Monday. Earlier in the global

session, the curve steepened to 53.60 bps, the widest spread

since March 17.

The curve showed a bull steepening pattern, in which yields

on short-dated notes are falling faster than those on

longer-term maturities, which is an indication that markets are

again entertaining interest rate cuts for 2026.

U.S. rate futures on Tuesday priced in about 6.5 bps of

easing, compared with 10 bps of hikes reflected on Monday,

according to LSEG estimates.

SIGNS OF SLOWDOWN

U.S. data on Tuesday began to show signs of a slowdown,

though it had little impact on Treasuries overall, given that

investors remained focused on the war and its implications for

oil prices and the global economy.

Data showed that U.S. job openings fell more than expected in

February and hiring dropped to the lowest level in nearly six

years, government data showed on Tuesday.

Job openings, a measure of labor demand, were down 358,000

to 6.882 million by the last day of February, the Bureau of

Labor Statistics said in its Job Openings and Labor Turnover

Survey, or JOLTS report.

Economists polled by Reuters had forecast 6.918 million

unfilled jobs. The job openings rate dropped to 4.2% from 4.4%

in January.