(Updates prices and commentary) By Herbert Lash and Sujata Rao NEW YORK/LONDON, July 20 (Reuters) - Yields on 10-year Treasuries rebounded from new five-month lows on Tuesday after the previous session"s biggest single-day decline since February, as traders scrambled to hedge against the unexpected rally in the U.S. bond benchmark. The yield on 10-year Treasury notes rose 1.8 basis points to 1.199%, a reversal from a low of 1.128% earlier in the session. The yield on the 30-year Treasury bond gained 3.8 basis points to 1.853%. What appeared to be short covering in mid-curve Eurodollars pulled long end yields lower, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC. "In that sense, there"s not so much of a fundamental driver on 10-year yields, but rather a trading one," LeBas said. Trading was volatile, as the 10-year yield overnight rose to nearly 1.22%. The decline in yields on Monday came as rising COVID-19 infections globally sparked concerns bout the economic outlook and sent investors seeking safety in U.S. and German bonds, despite relatively robust economic data and corporate earnings. "Equity markets were pricing an explosion of growth and margins over the next two to three years and it"s clear now we won"t have that," said Ludovic Colin, senior portfolio manager at Vontobel Asset Management. Colin said however bond markets appeared too pessimistic in starting to price recession. "We don"t think we will have recession, just long-term growth that wont be as beautiful as what was expected by investors in January-March period." The downward move has been led by the longer end of the market, flattening the yield curve significantly. Reflecting the growth concerns, the gap between two-year and 10-year yields remains below 100 basis points, having been at 122 bps at the start of July. Thirty-year yields which had risen almost four bps earlier in the day, slipped back to 1.80%, though stayed off end-January lows touched on Monday. The reversal on Treasuries boosted euro zone bonds too, with 10-year German yields extending their fall. They were last down 3 bps at minus 0.42% Inflation-adjusted 10-year yields inched to minus 1.10%, not far off the record lows around minus 1.113% last touched in January. 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, was at 99.7 basis points. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 1 basis points at 0.200%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.443%. The 10-year TIPS breakeven rate was last at 2.269%, indicating the market sees inflation averaging about 2.3%a year for the next decade. July 20 Tuesday 10:56AM New York / 1456 GMT Price Current Net Yield % Change (bps) Three-month bills 0.05 0.0507 0.000 Six-month bills !Empty !Empty !Empty value value value Two-year note 99-219/256 0.1996 -0.010 Three-year note 100-8/256 0.3644 -0.014 Five-year note 100-244/256 0.6786 -0.011 Seven-year note 101-232/256 0.9654 0.001 10-year note 103-240/256 1.1986 0.018 20-year bond 107-236/256 1.7741 0.039 30-year bond 111-236/256 1.8528 0.038 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.00 1.00 spread U.S. 3-year dollar swap 9.25 0.50 spread U.S. 5-year dollar swap 6.75 0.75 spread U.S. 10-year dollar swap -2.25 0.25 spread U.S. 30-year dollar swap -32.25 -0.75 spread (Reporting by Sujata Rao; editing by Yoruk Bahceli and Nick Zieminski) Our Standards: The Thomson Reuters Trust Principles.