NEW YORK, Aug 13 (Reuters) - U.S. Treasury yields

slipped on Tuesday after the release of tame producer price data

that looks unlikely to divert the Federal Reserve from an easing

glide path and should raise hopes that Wednesday's consumer

prices report will confirm inflation is under control.

The July Producer Price Index increased a

less-than-expected 0.1%, after rising 0.2% in June, the Labor

Department said, as a rise in the cost of goods was tempered by

cheaper services. In the 12 months through July, the PPI

increased 2.2%, backing down from a 2.7% rise in June.

Slowing inflation and a cooling labor market have led

financial markets to anticipate that the Federal Reserve will

start its easing cycle in September. With inflation behaving and

the unemployment rate surging to near a three-year high of 4.3%

in July, an interest rate cut of 50 basis points from its

current 5.25% to 5.5% range cannot be ruled out.

Bond yields fell sharply to their lowest in more than a year

in the wake of the surprising jump in the unemployment rate and

weaker than expected payrolls increase reported last Friday.

They have recovered somewhat but remain under pressure amid

concerns that complacency over a soft landing is misplaced and

that a recession could be in store.

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

down 3.4 basis points at 3.875%, about 2 bps below where it

stood before PPI. The 2-year note yield, which

typically moves in step with interest rate expectations, was

down 4 bps from late Monday at 3.9751%, about 3 bps of which

came after the report.

The 30-year bond yield fell 2 basis points from

late the previous session to 4.1784%.

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 negative 10.2 basis points, slightly

steeper, or less inverted than -11.7 bps late Monday.

Hopes for an aggressive 50 bps easing in September briefly

disinverted the 2s/10s curve to 1.5 bps last week, the first

time it had been in a normal upward sloping configuration since

July 2022.