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Yields dip before Tuesday's CPI report

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Traders watching potential peace deal for Russia, Ukraine

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Trump expands search for Fed Chair

(Updates to New York afternoon)

By Karen Brettell

Aug 11 (Reuters) -

U.S. Treasury yields edged lower on Monday, with no major

news or economic data driving trading ahead of Tuesday's highly

anticipated July consumer price inflation report.

Traders are pricing in 86% odds that the Federal Reserve

will cut interest rates at its next meeting in September,

following news on Monday that employers in July added fewer jobs

than expected, while job gains for previous months were also

revised sharply lower. However, the prospect of a renewed

inflation uptick is seen complicating the interest-rate outlook.

Fed Chair Jerome Powell has said that he anticipates prices

to rise this summer due to U.S. President Donald Trump's tariff

policies.

Weakening consumer sentiment, however, would likely dent

inflation increases, said Thomas Simons, chief U.S. economist at

Jefferies in New York.

"I don't understand how we can have this mentality that the

consumer is completely tapped out and not able to continue to

drive growth, but at the same time that pricing power is going

to be maintained on both the goods and services side."

"My view is more that if we do have tariff-driven inflation

that pushes goods prices up, that's going to reduce demand for

something else, whether that's other goods or services," he

added. "And thus, the pricing power is going to be weakened, and

we'll see some offsetting declines in prices that limits the

overall inflation pressure."

Economists polled by Reuters expect that headline inflation

rose 0.2% in July for an annual gain of 2.8%, with core prices

up 0.3% for an annual increase of 3.0%.

The benchmark U.S. 10-year note yield fell 1.2

basis points to 4.271%. The 2-year note yield fell

0.6 basis points to 3.752%.

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

by around half a basis point to 51.5 basis points.

Trump has signed an executive order extending a pause in

sharply higher U.S. tariffs on Chinese imports for another 90

days, a White House official said on Monday.

Longer-term U.S. Treasury yields are expected to rise

modestly in coming months on tariff inflation worries and a

deluge of new debt issuance even as short-term yields fall on

renewed Fed rate cut bets, a Reuters survey of bond strategists

showed.

Traders also focused on who Trump will nominate to

replace Fed Chair Powell when his term ends in May.

Bloomberg News reported on Monday that Trump has

expanded his search

to include two Fed vice chairs, Michelle Bowman and Philip

Jefferson, and Dallas Fed President Lorie Logan.

Trump is also due to meet with Russian President

Vladimir Putin on Friday to discuss an end to the Russia-Ukraine

war.

Ukrainian President Volodymyr Zelenskiy said Russia was

preparing its troops for

new offensives

instead of getting ready to stop the war in Ukraine.