WASHINGTON, May 29 (Reuters) - U.S. Treasury yields were

headed lower for a fourth straight day on Friday morning,

closing out a week in which reported progress in efforts to

secure a truce between the United States and Iran had spurred

some optimism on markets.

In a speech on Friday, Michelle Bowman, the Fed's vice chair

for supervision, said it was still early to gauge the Middle

East war's impact on the economy but that a prolonged energy

shock could require the central bank to change its stance on

monetary policy.

The Fed's preferred inflation gauge last month hit its highest

level in three years, according to Commerce Department data

released on Thursday.

Lou Brien, market strategist at DRW Trading, said the

fragile pause in hostilities since last month was easing the

upward pressure on crude oil prices and inflation expectations,

helping move Treasury yields lower.

"We're probably not done with high oil prices just simply

because we've possibly come to an agreement. We've been here

before," he said. "The price has come down and that's given the

bonds a chance to take a breath."

Elsewhere on Friday, the Commerce Department reported

slightly better-than-expected figures for the U.S. trade

balance.

The yield on the benchmark U.S. 10-year Treasury note

was last down 0.8 basis points to 4.447%. The

yield on the 30-year bond fell 0.4 basis points to

4.981%.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at a positive 43.1 basis points.

The two-year U.S. Treasury yield, which

typically moves in step with interest rate expectations for the

Fed, fell 1.1 basis points to 4.014%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.529% after closing at 2.559% on May 28.

The 10-year TIPS breakeven rate was last at

2.391%, indicating the market sees inflation averaging about

2.4% a year for the next decade.