TREASURIES-Yields dip but off lows after IMF report with Powell on deck

By Chuck Mikolajczak

NEW YORK, Oct 14 (Reuters) - U.S. Treasury yields slipped on Tuesday and were off earlier declines, as concerns about trade tensions between China and the U.S. dented risk appetite though a report from the International Monetary Fund eased some worries about economic slowing.

After trade tempers flared on Friday when U.S. President Donald Trump threatened to raise tariffs on Chinese goods to triple-digits, tensions between the two economic superpowers appeared to cool over the weekend.

However, both countries on Tuesday began charging additional port fees on ocean shipping firms that move everything from holiday toys to crude oil. That helped push the 30-year U.S. Treasury bond down to 4.59% on the session, its lowest since April 8, when markets were grappling with the fallout from Trump's original slew of tariff announcements.

But yields reversed some of their declines after the International Monetary Fund edged up its 2025 global growth forecast, saying tariff shocks and financial conditions have proven more benign than expected, but cautioned that a renewed U.S.-China trade war could slow output significantly.

"When you have the IMF data, the market hears that and says OK, some of this pessimism around the shutdown and around the trade between China and the U.S. at this point could be offset somewhat from the upgrade to the U.S. economy by the IMF," said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

"It's kind of putting a positive spin on things, the market just kind of reversed out some of that trade-related trade that we saw leading into the IMF report."

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB slipped 0.9 basis point to 4.042% after falling to 3.998%, its lowest since September 17. The yield on the 30-year bond US30YT=TWEB rose 0.3 basis points to 4.637%.

MARKETS AWAIT FED CHAIR COMMENTS

Markets have been dealing with a dearth of economic data due to the U.S. government shutdown, now in its fourteenth day.

Investors also awaited comments from Federal Reserve Chair Jerome Powell for insight into the path of monetary policy, his last scheduled remarks before the Fed's next meeting.

"People will be listening to his comments to see if he's using the more recent stuff that's been going on as more rationale to have a dovish stance," said Barnes.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 54.3 basis points.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 2.5 basis points to 3.497% after dropping to 3.466%, its lowest since September 5.

The Fed is largely expected to cut rates at its policy meeting at the end of the month, with markets pricing in a 96.7% chance for a 25 basis point cut, according to CME's Fedwatch Tool.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.366% after closing at 2.372% on Friday, its lowest since July 3.

The U.S. bond market was closed on Monday for the Columbus Day/Indigenous Peoples’ Day holiday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.312%, indicating the market sees inflation averaging about 2.3% a year for the next decade.