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U.S. retail sales come in weaker than expected in May

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U.S. yields fall in five of last six sessions after data

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U.S. yield curve reduces inversion

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Focus on U.S. 20-year bond auction later on Tuesday

(Adds new comments, bullets, updates prices)

By Gertrude Chavez-Dreyfuss

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

on Tuesday after data showed retail sales in the world's largest

economy grew less than expected last month, keeping the Federal

Reserve on track to lower interest rates this year.

U.S. yields have fallen in five of the last six session as

data across different sectors of the economy has started to show

moderation. They rose on Monday, however, as investors took

profits on price gains that took the benchmark 10-year yield,

for instance, to a three-month low last Friday.

A government report on Tuesday showed U.S. retail sales rose

0.1% last month after a downwardly revised 0.2% drop in April.

Economists polled by Reuters had forecast retail sales, which

are mostly goods and are not adjusted for inflation, gaining

0.3% in May.

"I am not completely surprised that there is a slowdown in

consumption," said Thierry Wizman, global rates and FX

strategist at Macquarie in New York.

"Some of the analysis had suggested that it would be

around the middle of the year that we will get exhaustion in the

excess savings accumulated by households after the pandemic. If

we see a slowdown in the consumer, this would be around the

right time to expect them," he added.

In mid-morning trading, the benchmark 10-year yield slid 2.3

basis points (bps) to 4.257%.

U.S. 30-year yields slipped 1.3 bps to 4.397%.

On the front end of the curve, the two-year yield declined

3.8 bps to 4.724%.

The U.S. yield curve, meanwhile, modestly reduced its

inversion on Tuesday. The spread between U.S. two- and 10-year

yields, which typically signals the onset of recession was at

minus 46.6 bps, compared with minus 48.9 bps late

on Monday.

The curve is what is called a "bull steepener," in which

short-term rates are falling more sharply than longer-dated

ones. This often happens when the Fed is expected to cut

interest rates.

Following the retail sales data, fed funds futures

raised the chances of easing in September to around 67%, from

about 60% late on Monday, according to LSEG's calculations. The

market is also pricing between one to two rate cuts of 25 bps

each this year.

Later on Tuesday, the U.S. Treasury will auction $13

billion in 20-year bonds.

"As a theme, we're constructive on the prospects for the

auction in light of how well last week's 10s and 30s

(auctions)," wrote BMO Capital in a research note.

"The caveat is that 20s occupy a very specific place on

the curve, one in which the influence of relative value creates

concern on the heels of the recent flight-to-liquidity stemming

from the dislocations in Europe."