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Yields climb after two-day decline

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Fed dissenters express concerns over inflation

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10-year yield poised for second straight weekly gain

By Chuck Mikolajczak

NEW YORK, Dec 12 (Reuters) - U.S. 10-year Treasury

yields rose on Friday after two straight sessions of declines,

as investors assessed commentary from a flurry of Fed speakers

and a positive outlook on the economy.

U.S. yields had been steadily rising in recent weeks in tandem

with global yields as many central banks had signaled they are

either at or near the end of their own easing cycles, while the

Bank of Japan is widely anticipated to hike rates at its policy

meeting next week.

However, yields retreated after the Federal Reserve announced a

rate cut on Wednesday, but signaled a likely near-term pause as

it sees a pickup in economic growth next year.

The central bank also said it would begin buying short-dated

government bonds on Friday to help manage market liquidity

levels to ensure the central bank retains firm control over its

interest rate target system.

Multiple Fed officials commented on their stance in the recent

policy meeting as the blackout period ended, with those who

voted against the rate reduction expressing concerns that

inflation remains too high to justify lowering borrowing costs,

especially in light of the lack of official data due to the

extended government shutdown.

"The data is very mixed right now and these are individuals on

the Fed with different projections and different thoughts around

everything," said Tony Welch, chief investment officer at

SignatureFD in Atlanta.

"It's a result of the tug of war between inflation and

employment right now. And people just have different

perspectives on it."

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

rose 4.5 basis points to 4.186% and was up nearly

5 basis points on the week, putting it on track for a second

straight weekly climb.

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

moves in step with interest rate expectations for the Fed, rose

1.1 basis points to 3.541% and was down 2.5 basis points on the

week.

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 64.3 basis points after reaching

65.3, its widest since April 21.

The curve was showing a bear-steepener situation, where the

rise in long-term rates outpaces that of short-term rates, which

reflects market expectations for higher economic growth and

persistent inflation.

"What's happening is we're repricing that the economy is going

to be in pretty decent shape next year and so that's one of the

ways you can end up with kind of a steeper curve," said Welch.

The yield on the 30-year bond rose 5.9 basis

points to 4.849% and was up nearly 6 basis points on the week,

on pace for a second straight weekly advance.

Many market participants are expecting a boost to economic

growth next year as President Donald Trump's massive tax-cut and

spending bill takes effect.

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

Inflation-Protected Securities (TIPS) was last at

2.325% after closing at 2.32% on Thursday, its lowest level in a

week.

The 10-year TIPS breakeven rate was last at

2.272%, indicating the market sees inflation averaging about

2.3% a year for the next decade.