TREASURIES-Yields flat as investors brace for key U.S. jobs report

(Adds milestones to 10-year and two-year yields) By David Randall NEW YORK, Feb 2 (Reuters) - U.S. Treasury yields were little changed on Thursday as investors digested a more dovish tone from the Federal Reserve and prepared for a closely watched jobs report on Friday. The strength of the labor market is a key concern for the Fed, which announced a 25 basis-points interest rate hike Wednesday as it attempts to bring inflation down to its target rate of 2%. The S&P 500 rose more than 1% on Wednesday, and is up more than 7% for the year, after Fed Chair Jerome Powell seemed to strike a more dovish tone in a press conference. Yields on the benchmark U.S. 10-year Treasury, which move inversely to prices, fell after the meeting and have declined by more than 40 basis points in 2023. On Thursday, the 10-year yield dropped to a two-week low, while the two-year yield, which typically moves in step with interest rate expectations, tumbled to its weakest level since early October. "The Fed came out fairly dovish yesterday and said that they see inflation easing in a lot of different areas of the economy, but you may be seeing a muted reaction today because people don't want to get too far out over their skis with the non-farm payrolls report coming tomorrow," said Ellis Phifer, managing director, Fixed Income Capital Markets at Raymond James. Economists polled by Reuters expect Friday's report to show that the U.S. economy added 185,000 payroll jobs in January and the unemployment rate ticked up to 3.6%. Job cuts announced by U.S.-based employers surged 136% to 102,943 in January, the highest for the month since 2009, in a move driven largely by layoffs at large technology firms, according to global outplacement firm Challenger, Gray & Christmas. At the same time, initial claims for state unemployment benefits dropped 3,000 to a seasonally-adjusted 183,000 for the week ended Jan. 28, the Labor Department said. Economists polled by Reuters had forecast 200,000 claims for the latest week. The yield on benchmark 10-year Treasury notes was flat at 3.398%. The yield on the 30-year Treasury bond was little changed at 3.552%. A closely-watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, remained inverted at -69.90 basis points. The U.S. two-year yield was down 1.4 basis points at 4.093%. February 2 Thursday 4:01PM New York / 2101 GMT Price Current Net Yield % Change (bps) Three-month bills 4.5225 4.6377 -0.018 Six-month bills 4.605 4.7796 -0.037 Two-year note 100-12/256 4.1001 -0.010 Three-year note 100-72/256 3.7726 -0.008 Five-year note 100-8/256 3.4931 -0.004 Seven-year note 100-76/256 3.4518 0.003 10-year note 105-240/256 3.4055 0.007 20-year bond 104-148/256 3.672 0.002 30-year bond 108-16/256 3.5585 0.009 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 28.00 -0.25 spread U.S. 3-year dollar swap 15.75 0.50 spread U.S. 5-year dollar swap 7.25 1.25 spread U.S. 10-year dollar swap -0.75 1.50 spread U.S. 30-year dollar swap -35.50 3.25 spread (Reporting by David Randall; Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan Oatis, Barbara Lewis, Chizu Nomiyama and Nick Zieminski)