TREASURIES-Yields pare gains after Omicron variant found in U.S.

(Adds quote, data, comments by Fed's Powell and Williams; updates prices) By Karen Brettell NEW YORK, Dec 1 (Reuters) - Longer-dated U.S. Treasury yields were little changed after giving up earlier gains on Wednesday as the Omicron coronavirus variant was found in the United States, though short-dated yields stayed higher on chances that the U.S. Federal Reserve will speed up its bond purchase tapering. The United States identified its first case of the new variant in a fully vaccinated traveler who had returned from South Africa on Nov. 22 and had mild symptoms. It came after yields had bounced earlier in the day, following Fed Chair Jerome Powell's comments on Tuesday that U.S. central bankers in December will discuss whether to end their bond purchases a few months earlier than had been anticipated. "Powell yesterday in his hawkish tilt removed a good deal of potential uncertainty in terms of coming Fed rhetoric as he basically confirmed that the hawkish shift that we've heard from other officials since the last FOMC remains intact," said Jonathan Cohn, head of rates trading strategy at Credit Suisse in New York. High inflation, now running at more than twice the Fed's flexible target of 2% annually but which the central bank has for months characterized as "transitory," is only expected to ease in the second half of 2022, Powell said. "I think it's probably a good time to retire that word." "They are starting to discount the fact that inflation is transitory," said Tom di Galoma, managing director at Seaport Global Holdings in New York. "They are probably going to drop the transitory comment from future releases and future testimony." Powell repeated on Wednesday that with the U.S. economy growing strongly and supply-demand imbalances poised to persist in the near future, policymakers need to be ready to respond to the possibility that inflation may not recede in the second half of next year as expected. New York Fed President John Williams also said the latest COVID-19 variant could extend some of the supply-chain challenges and shortages that have led to higher inflation. Benchmark 10-year yields were little changed on the day at 1.434%, after earlier rising to 1.506%. Two-year yields, which are highly sensitive to interest rate moves, jumped 4 basis points to 0.563%. They are holding below a high of 0.687% reached on Nov. 23, which was the highest since March 2020. The yield curve between two-year and 10-year notes was at 86 basis points. It has flattened from 130 basis points in October as investors price more rate hikes into short- and intermediate-dated notes. Longer-dated debt remains relatively in demand on expectations that the rate hikes will dampen inflation and growth longer-term. Futures traders are almost fully pricing in a rate increase at the Fed's June 2022 meeting. Treasuries showed little reaction to the ADP National Employment Report on Wednesday that showed private payrolls increased by 534,000 jobs last month. The next major U.S. economic release will be Friday's jobs report for November. The U.S. economy expanded at a modest-to-moderate pace in October and the first half of November while firms grappled with rising inflation and a scramble to fill jobs amid labor shortages, a survey conducted by the Fed showed on Wednesday. Volatility is expected to stay high at least through year-end as the market struggles with low liquidity and uncertainty around the Fed's future rate path. The ICE BofA MOVE Index, a measure of volatility in U.S. Treasuries, is trading at its highest level since March 2020. Inflation expectations have also fallen as investors price in the greater likelihood of faster rate increases. Breakeven rates on five-year Treasury Inflation-Protected Securities have fallen to 2.74%, from around 3.20% in mid-November. December 1 Wednesday 3:00PM New York / 2000 GMT Price Current Net Yield % Change (bps) Three-month bills 0.055 0.0558 0.003 Six-month bills 0.1025 0.104 0.000 Two-year note 99-224/256 0.5631 0.037 Three-year note 99-192/256 0.8359 0.024 Five-year note 100-118/256 1.1548 0.008 Seven-year note 100-248/256 1.3544 -0.010 10-year note 99-116/256 1.4341 -0.007 20-year bond 102-120/256 1.8514 0.003 30-year bond 102-64/256 1.7778 -0.008 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 23.50 -1.75 spread U.S. 3-year dollar swap 22.75 -0.75 spread U.S. 5-year dollar swap 11.50 -0.75 spread U.S. 10-year dollar swap 7.00 0.00 spread U.S. 30-year dollar swap -16.00 0.00 spread (Editing by Mark Heinrich and Peter Graff)