* Oil decline pushes 30- and 10-year yields lower
* U.S. 2-year yields edge higher
* Fed expected to raise rates Wednesday (Updates prices, adds analyst comments)
By Sam Forgione
NEW YORK, March 14 (Reuters) - U.S. long-dated and benchmark Treasury yields edged lower on Tuesday after a drop in oil prices was viewed as a deflationary sign, but the drop in yields was limited as investors awaited the Federal Reserve’s policy statement on Wednesday.
U.S. 30-year Treasury bond yields, which are sensitive to inflation expectations, were last down about 3 basis points at 3.167 percent, from 3.192 percent late Monday. That was near a session low of 3.165 percent struck earlier and marked a reversal from overnight trading, when 30-year yields hit a three-month high of 3.215 percent.
Benchmark 10-year yields were down about 2 basis points at 2.591 percent, from 2.607 percent late Monday. Two-year notes edged slightly higher to exhibit a “curve flattener” trade ahead of the Fed statement.
Oil prices slid to three-month lows after OPEC reported a rise in global crude stocks and a surprise jump in production from its biggest member, Saudi Arabia, which came despite output curbs by the group.
The decline in oil prices posed a roadblock to inflation, analysts said. That boosted longer-dated Treasuries prices and pushed their yields lower since inflation is a risk to the debt because it erodes their interest payouts.
“The fact that oil can’t hold a rally indicates that some of the concerns that we had at the beginning of the year about reflation might be premature,” said Jim Vogel, interest rates strategist at FTN Financial in Memphis.
Investors were awaiting the Fed’s latest policy decision at the close of its two-day meeting on Wednesday. While a rate increase from the U.S. central bank was largely anticipated, whether policymakers would signal a more aggressive pace of monetary tightening remained less certain.
Interest rates futures implied traders saw a 93 percent chance the Fed would announce it was raising rates by a quarter percentage-point at the end of the meeting, CME Group’s FedWatch program showed. Those expectations were unchanged from Monday.
Uncertainty about the Fed’s latest projections may have pushed two-year yields a bit higher, said Justin Hoogendoorn, head of fixed income strategy at Piper Jaffray & Co in Chicago.
U.S. two-year notes, which are considered most vulnerable to Fed policy, were last down slightly in price to yield 1.380 percent, from a yield of 1.372 percent late Monday.
Analysts said trading volumes appeared to be thin, partly because of a blizzard in the Northeastern United States. (Reporting by Sam Forgione; Editing by Lisa Von Ahn and Leslie Adler)