*

Markets speculate about potential announcement by

president

Donald Trump of his choice to replace Powell

*

Data shows more people are staying out of work longer

*

Focus on PCE data expected for Friday after first-quarter

GDP

revision

*

Difference in yields between 2-year and 10-year US

Treasuries

the largest in a month

(Updates prices, adds data on yield curve)

By Tatiana Bautzer

NEW YORK, June 26 (Reuters) - Yields on U.S. Treasuries

eased on Thursday as markets considered weak jobs data and

reports that President Donald Trump could name a replacement for

Fed Chair Jerome Powell soon, which fueled speculation of faster

interest rate cuts.

"You are starting to see some cracks in the labor market,

and that may give some confidence to markets that the Fed can

begin easing in September," said Stan Shipley, fixed income

strategist at Evercore ISI in New York.

The possibility Trump could nominate Powell's replacement

before his term as Federal Reserve chair ends in May 2026

pressured yields during Thursday's session, said Ian Lyngen,

head of U.S. rates strategy at BMO Capital Markets. Investors

believe a "shadow" Fed chair could influence monetary policy.

The Wall Street Journal reported that Trump is considering

selecting Powell's replacement in the next few months.

"Messaging from a dovish incoming Chair could potentially

overshadow the hawkish skew to Powell's wait-and-see signals,"

Lyngen said in a note sent to clients.

Fed Governors Christopher Waller and Michelle Bowman, both

Trump appointees, said recently that they would be open to a

potential interest rate cut as soon as July.

But Powell and other officials such as Richmond Fed

President Thomas Barkin have said the best course is to wait as

tariffs are very likely to push inflation up over the coming

months.

Markets have been slowly increasing the odds of a rate cut

decision at July's meeting, according to the CME's FedWatch

tool. On Thursday, this chance was at 22%. Investors predict a

95% chance of lower rates in September.

But for a rate cut to materialize in July, "we would need

really awful job-market news for that to happen," Shipley added.

Other data released on Thursday also showed signs of a

deceleration in the U.S. economy.

First-quarter GDP was revised lower, although the data did

not impact the Treasury market. Investors will be attentive to

Personal Consumption Expenditures price index data for May on

Friday.

STEEPER CURVE

The closely watched yield curve between two- and 10-year

U.S. Treasury notes, seen as an indicator of

economic expectations, was at 53.1 basis points, the most

positive level in more than a month.

The steepening of the yield curve, as the widening is

known, happened mainly because yields fell faster for

shorter-term securities than at the longer end. Investors on the

longer end are seeking higher yields to deal with uncertainties

such as fiscal sustainability and longer term inflationary

pressure.

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

also fell 4.3 basis points to 4.25%. The yield on

the 30-year bond fell 3.1 basis points to 4.811%.