(Updated in New York afternoon time)

By Karen Brettell

NEW YORK, May 22 (Reuters) -

U.S. Treasury yields fell on Thursday after a recent selloff

drew some buyers at more attractive levels, with 30-year yields

earlier reaching the highest in 19 months as a worsening fiscal

outlook for the United States raised concerns about demand for

U.S. government debt.

Yields initially rose after the Republican-controlled U.S.

House of Representatives on Thursday passed a sweeping tax and

spending bill that would enact much of President Donald Trump's

policy agenda and saddle the country with trillions of dollars

in debt.

Soft demand for a $16 billion sale of 20-year bonds on

Wednesday also increased concerns about falling interest in U.S.

debt. The auction was the first since Moody's Investors Service

cut the United States sovereign rating from the top "Aaa" on

Friday.

"You've had a variety of factors that seem to be calling

into question demand for longer duration Treasuries and maybe

demand for longer duration sovereign bonds," said Zachary

Griffiths, head of IG and macro strategy at CreditSights.

But yields fell back from their highs later on Thursday

as some buyers emerged. Benchmark 10-year yields and 30-year

yields have both risen by around 50 basis points this month.

The Treasury saw average demand for a $18 billion sale

of 10-year Treasury Inflation-Protected Securities on Thursday.

They debt sold at a high yield of 2.22%, around half a basis

point higher than where it traded before the sale. Demand was

2.36 times the amount of debt on offer.

U.S. Federal Reserve Governor Christopher Waller also said

on Thursday he still sees a path to rate cuts later this year,

but noted that the outlook depends on where the Trump

administration's tariff policy settles out.

Fed funds futures

traders see the Fed as most likely to resume rate cuts in

September.

The market may need to see something significant in

terms of the economy or supply for any yield declines to be long

lasting.

"The Treasury market is looking for a circuit breaker,"

said Ed Al-Hussainy, senior rates analyst at Columbia

Threadneedle Investments.

"This can come in the form of poor labor market data to

bring forward Fed cuts and trigger a reassessment of the

strength of the economy. Or a change in the Treasury's financing

strategy that skews issuance of towards Treasury bills and

intermediate maturity bonds," he said.

The 2-year note yield, which typically moves

in step with interest rate expectations, was last down 1.9 basis

points at 3.999%.

The yield on benchmark U.S. 10-year notes

fell 4.6 basis points to 4.551%, after earlier reaching 4.629%,

the highest since February 12.

The yield curve between two-year and 10-year notes

flattened 3 basis points to 55 basis points.

The 30-year bond yield fell 2.6 basis points

to 5.063% and earlier hit 5.161%. It is close to October 2023's

high of 5.179%, a break past which would take it to its highest

since mid-2007.

Inflation fears have weighed on longer-dated debt demand

as the Trump administration continues to work on trade deals

that will maintain tariffs, but in most cases below the levels

that were initially implemented.

Japanese government bond yields

have also surged following a weak 20-year Japanese debt

auction earlier this week. That has raised concerns that

Japanese investors will move away from Treasuries as Japanese

bonds become more attractive from a yield perspective.

Fiscal and debt supply concerns have come to the fore in a

week that is otherwise light on major economic releases to drive

market direction.

Data on Thursday showed that the number of Americans filing

new applications for unemployment benefits dropped last week,

suggesting the economy maintained a steady pace of job growth in

May.

(Reporintg by Karen Brettell; Additional reporting by Saeed

Azhar and Alun John; Editing by Frances Kerry and Nick

Zieminski)