(Recasts, adds analyst quotes, minutes news, updates yields)
By Kate Duguid
NEW YORK, Nov 29 (Reuters) - The benchmark 10-year Treasury yield fell as the two-year return rose on Thursday, flattening the yield curve, after minutes from the last Federal Reserve policy-making meeting showed October's market volatility would not deter the U.S. central bank from raising interest rates in December and beyond.
Minutes from the November meeting show almost all Fed officials agreed another interest rate increase was "likely to be warranted fairly soon," but also opened debate on when to pause further hikes and how to relay those plans to the public.
A December rate hike has been close to fully priced in by the market, however, which suggests that was not the driver of Thursday's move. Rather, the flattening has been a reversal of a steepening on Wednesday which followed comments from Fed Chair Jerome Powell that the market initially interpreted as dovish, adding uncertainty about rate hikes after December.
"I'm not sure (the market's initial interpretation) was correct. I don't really see so much difference between yesterday's comments and where (Powell) stood on the economy in October," said Mary Ann Hurley, vice president, fixed income trading, D.A. Davidson.
The reversal began overnight, with the 10-year yield falling briefly below the psychologically significant 3 percent level for the first time since Sept. 18. Thursday's minutes supported a further flattening and bolstered the view that the market's initial reaction to Powell's comments on Wednesday were overblown.
Following October's broad financial markets sell-off, Powell said on Wednesday that interest rates are now "just below" estimates of neutral, less than two months after saying rates were probably "a long way" from that point.
The Fed in 2018 has hiked rates each quarter, but signs of a slowdown overseas and nearly two months of market volatility - including a sharp sell-off in equities last week - have clouded an otherwise rosy picture of the U.S. economy.
Market participants are also closely watching a meeting between President Donald Trump and Chinese leader Xi Jinping at the Group of 20 summit on Saturday at which the leaders are expected to discuss trade. Trump said on Thursday there was "a long way to go" on tariffs with China and urged companies to build products in the United States to avoid them.
Until then, investors may hold off on making big moves.
"We're definitely going to wait and see what happens at the G20," Hurley said. "If they're getting close to a deal, that would definitely be a more risk-on trade, which should be negatively impacting Treasuries, and it's not, which tells me that the market is in wait-and-see mode." (Reporting by Kate Duguid; Editing by Bernadette Baum and Richard Chang)