(Recasts, updates yields, adds ISM data, analyst comments) By Ross Kerber and Karen Pierog Feb 1 (Reuters) - U.S. Treasury yields headed lower on Monday as efforts by Republican lawmakers in Washington to scale back a relief package reduced expectations for additional supply and data showed factory activity slowed last month. The benchmark 10-year yield was last down 2.2 basis points at 1.0723%. The two-year yield, typically an indication of interest rate expectations, was last at 0.1113% and traded as low as 0.107%, just above its all-time low of 0.105% reached in May. Democratic President Joe Biden was set to meet later on Monday with 10 moderate Republican U.S. Senators, who proposed shrinking his proposed $1.9 trillion package to aid the coronavirus-battered economy to $618 billion. "There"s less expectation of a grander stimulus package, which is limiting expectations for Treasury supply" and lowering yields, said Jim Barnes, director of fixed income for Bryn Mawr Trust. Meanwhile, U.S. manufacturing activity slowed slightly in January, with the Institute for Supply Management (ISM) reporting its manufacturing sector activity index fell to a reading of 58.7 from 60.5 in December. "The fact that underwhelmed a bit sort of limited the selling pressure that there was a bit of earlier today, starting overnight," said Ben Jeffery a strategist at BMO Capital Markets. ISM"s measure of prices paid by factories for raw materials and other inputs jumped to its highest level in nearly 10 years, strengthening expectations inflation will perk up this year. The 10-year Treasury Inflation-Protected Securities" breakeven inflation rate, which briefly slipped below 2% last week, was last at 2.028%, indicating the market expects inflation to average more than 2% a year for the next decade, above the current pace of inflation. Later on Monday, the U.S. Treasury Department will release its quarterly borrowing estimate, followed on Wednesday with refunding details, including anticipated auction sizes for each maturity of notes and bonds. The size of coupon auctions is expected to remain steady, according to analysts. "Leaving coupon auctions at current sizes and using some of Treasury’s $1.6 trillion stockpile of cash will allow Treasury to meet its obligations even if additional fiscal stimulus is enacted as we expect," Nancy Vanden Houten, lead economist at Oxford Economics said in a report on Monday. A closely watched part of the yield curve measuring the gap between yields on two- and 10-year Treasury notes was last down less than a basis point at 95.73 basis points. February 1 Monday 1:38PM New York / 1938 GMT Price Current Net Yield % Change (bps) Three-month bills 0.055 0.0558 -0.002 Six-month bills 0.0725 0.0735 -0.001 Two-year note 100-7/256 0.1113 -0.006 Three-year note 99-220/256 0.1728 -0.010 Five-year note 99-198/256 0.4209 -0.024 Seven-year note 99-244/256 0.7569 -0.025 10-year note 98-44/256 1.0723 -0.022 20-year bond 95-96/256 1.6499 -0.020 30-year bond 95-40/256 1.8368 -0.021 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.50 0.25 spread U.S. 3-year dollar swap 8.25 0.25 spread U.S. 5-year dollar swap 10.50 1.00 spread U.S. 10-year dollar swap 4.25 0.25 spread U.S. 30-year dollar swap -24.75 -0.25 spread (Reporting by Ross Kerber; editing by Jonathan Oatis)