TREASURIES-Yield curve flattens as data paints mixed picture for US economy

By Karen Brettell

March 17 (Reuters) - Longer-dated U.S. Treasury yields slipped on Monday while shorter-dated ones rose on concerns that U.S. economic growth will slow while the Federal Reserve keeps interest rates on hold.

Data on Monday showed a mixed picture for the economy.

Retail sales rose 0.2% last month after a revised 1.2% decline in January, though the increase missed economists' expectations.

Retail sales excluding automobiles, gasoline, building materials and food services increased 1.0% in February after a revised 1.0% decline in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

“You can make either positive or negative trends out of it. Much of the swings were in non-store retailers. They were unusually weak last month. They were unusually strong this month. It probably just evens out,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

Other data showed that factory activity in New York State plummeted this month by the most in nearly two years.

The yield on benchmark U.S. 10-year notes US10YT=RR was last down 1.9 basis points on the day at 4.289%.

The 2-year note US2YT=RR yield rose 1.9 basis points to 4.034%.

The yield curve between two-year and 10-year notes US2US10=TWEB flattened by around four basis points to 26 basis points.

Investors remain nervous that new trade tariffs will slow the economy while also pushing up prices.

U.S. President Donald Trump said he has no intention of creating exemptions on steel and aluminum tariffs and said reciprocal and sectoral tariffs will be imposed on April 2.

U.S. Treasury Secretary Scott Bessent played down recent stock market weakness in an interview on Sunday, saying corrections were healthy and that markets "will do great" if the administration puts into place good tax policy, deregulation and energy security.

That dashed some hopes that the government will change policies as a result of market moves.

The Federal Reserve, meanwhile, is expected to hold interest rates steady when it concludes its two-day meeting next Wednesday, and Chair Jerome Powell is likely to repeat recent comments that the U.S. central bank is in no rush to resume rate cuts.

"Powell kind of sealed the deal with his Friday speech before the blackout period, and the message there was - hey, it's too soon to really think about protecting the economy with rate cuts,” Le Bas said. “There's no reason for that to shift in such a short period of time.”

Fed funds futures traders see the U.S. central bank as most likely to resume rate cuts in June. Fed policymakers will also update their interest rate and economic projections this week.

Traders are also watching discussions over a possible Russia-Ukraine peace deal.

Trump said he plans to speak to Russian President Vladimir Putin on Tuesday and discuss ending the war in Ukraine, after positive talks between U.S. and Russian officials in Moscow.

The Treasury will sell $13 billion in 20-year bonds on Tuesday, and $18 billion 10-year Treasury Inflation-Protected Securities on Thursday.