TREASURIES-Yields retreat as stock market falls

 (Recasts, updates yields, adds comments from analyst and
Chicago Fed president)
    By Karen Pierog
    CHICAGO, Jan 4 (Reuters) - U.S. Treasury yields backpedaled
from earlier gains on Monday as stock indexes tumbled on
nervousness over an election this week that will determine
control of the U.S. Senate, while traders pushed inflation
expectations over the next 10 years to their highest average
since 2018.   
    The benchmark 10-year yield was last up less
than a basis point at 0.9165%. 
    "Equities started the year very heavy so that helped push
rates a little lower here," said Gennadiy Goldberg, senior rates
strategist, at TD Securities in New York.
    The 10-year Treasury Inflation Protected Securities
breakeven inflation rate topped 2% for the first time since
November 2018.
    The move was partly due to "the expectation if there is
additional stimulus you'll probably get additional pressure
higher on breakevens since stimulus is reflationary," according
to Goldberg.
     Tuesday's U.S. Senate runoff elections for two seats from
Georgia will determine control of the chamber and the likely
fate of President-elect Joe Biden's legislative agenda.
 
    Continued split control of Congress with a win by the
Republican candidates would hinder substantial fiscal measures,
which would help keep Treasury yields in check, while a
Democratic victory could push longer-term yields higher if 
supply increases to fund more stimulus, according to
analysts.
    Friday's release of December employment data also looms
large as some states limited service-sector activity in the wake
of a post-Thanksgiving Holiday surge in coronavirus cases. 
    "It seems like kind of a perfect storm brewing here for a
really weak report with a negative headline number," said Tom
Simons, money market economist at Jefferies in New York, adding
that it should be largely priced into the market. 
    Meanwhile, Chicago Federal Reserve President Charles Evans
on Monday told reporters that it will become clearer by
springtime if or how the central bank needs to adjust its asset
purchase program.
    "I think it would take a move higher in rates or a
deterioration in growth or something like that to actually get
the Fed to push out the average maturity of purchases," Goldberg
said.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was last down
less than a basis point at 0.1171%.
    A closely-watched part of the yield curve measuring the gap
between yields on two- and 10-year Treasury notes
was last less than a basis point steeper at 79.96 basis points.
    January 4 Monday 2:51PM New York / 2051 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0775       0.0786    0.000
 Six-month bills               0.085        0.0862    -0.003
 Two-year note                 100-4/256    0.1171    -0.004
 Three-year note               99-228/256   0.1623    -0.003
 Five-year note                100-26/256   0.3544    -0.005
 Seven-year note               99-232/256   0.6387    -0.003
 10-year note                  99-156/256   0.9165    0.004
 20-year bond                  98-192/256   1.4476    0.010
 30-year bond                  99-68/256    1.6562    0.014
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.00        -0.50    
 spread                                               
 U.S. 3-year dollar swap         7.00        -0.50    
 spread                                               
 U.S. 5-year dollar swap         6.50        -0.25    
 spread                                               
 U.S. 10-year dollar swap        0.00        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -25.50        -0.75    
 spread (Reporting by Karen Pierog, Editing by Nick Zieminski and Chizu
Nomiyama)