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By Karen Brettell
       NEW YORK, Aug 16 (Reuters) - U.S. Treasury yields hit
session highs on Wednesday after minutes from the Federal
Reserve’s July meeting showed that Fed officials were divided
over the need for more interest rate hikes, though “most”
policymakers continued to prioritize the battle against
inflation.
    “Some participants" cited the risks to the economy of
pushing rates too far, however, and cautionary voices about the
effects of continued monetary tightening appeared to play a more
prominent role in the debate at last month's policy meeting.
    The U.S. central bank hiked rates by 25 basis points at the
meeting and Fed Chair Jerome Powell said the economy still
needed to slow and the labor market to weaken for inflation to
"credibly" return to the U.S. central bank's 2% target.
    “They’re not quite sure how much of their policy has already
affected the economy, and to what extent it still is going to,”
said Lou Brien, market strategist at DRW Trading in Chicago.
    “They commented before that’s one of the reasons that they
paused a couple of meetings ago... to try to assess the effect
of the cumulative moves and the effect of how much more is to
come - and it doesn’t seem to me that they have really answered
that question yet.”
    Benchmark 10-year yields were last at 4.260%,
after reaching a 10-month high of 4.274% on Tuesday. A break
above the 4.338% level reached in October would bring yields to
their highest since 2007.
    Interest rate sensitive two-year yields were at 4.980%. They
are holding below yields of 5.120% reached on July 6, which were
the highest since June 2007.
    The inversion in the yield curve between two-year and
10-year notes narrowed to minus 72 basis points.
    The next Fed focus will be the Federal Reserve Bank of
Kansas City’s annual symposium in Jackson Hole, Wyo., between
Aug. 24 and Aug. 26.
    The Fed’s Sept. 19-20 meeting will also give new interest
rate clues as Fed officials will update their interest rate
projections for the coming quarters.
    Yields also rose earlier on Wednesday after two U.S.
economic reports beat economists’ expectations.
    U.S. single-family homebuilding surged in July amid an acute
shortage of previously owned houses. U.S. July industrial
output, meanwhile, rose by 1.0%, beating expectations for a 0.3%
gain.
    Data on Tuesday also showed that retail sales rose more than
expected in July.
    Still, Ben Jeffery, an interest rate strategist at BMO
Capital Markets, noted that Tuesday's selloff reached levels
that were attractive to buyers and several factors might support
lower yields.
    “We have gotten still good but no longer accelerating NFP
(nonfarm payroll) prints, (and) a couple of CPI prints that show
disinflation is continuing," Jeffery said.
    "I would say the consensus at this point is that the Fed
will not hike in September even if they may hike in
November/December, and I think all of these things are probably
translating into increased comfort in buying dips.”
    Concerns about China’s economy are also adding to fears of a
global slowdown.
    Missed payments on investment products by a leading Chinese
trust firm and a fall in home prices have added to worries that
China's deepening property sector crisis is stifling what little
momentum the economy has left.
    In the longer-term, however, analysts also note that
increasing Treasury supply due to a deteriorating U.S. deficit
and the potential for lower demand from Japanese investors as
the Bank of Japan shifts away from its ultra loose monetary
policy could keep U.S. Treasury yields higher than they would
otherwise be.
    
      August 16 Wednesday 3:00PM New York / 1900 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             5.29         5.4511    0.000
 Six-month bills               5.28         5.5152    -0.006
 Two-year note                 99-147/256   4.9801    0.026
 Three-year note               99-40/256    4.6801    0.028
 Five-year note                98-192/256   4.4082    0.030
 Seven-year note               97-224/256   4.3572    0.034
 10-year note                  96-228/256   4.2603    0.039
 20-year bond                  91-84/256    4.5446    0.046
 30-year bond                  96-20/256    4.3606    0.042
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         0.00         0.00    
 spread                                               
 U.S. 3-year dollar swap         0.00         0.00    
 spread                                               
 U.S. 5-year dollar swap         0.00         0.00    
 spread                                               
 U.S. 10-year dollar swap        0.00         0.00    
 spread                                               
 U.S. 30-year dollar swap        0.00         0.00    
 spread                                               
                                                      
 

 (Reporting by Karen Brettell
Editing by Tomasz Janowski and Chizu Nomiyama)