(Corrects two-year debt-ceiling suspension to "expired on Saturday" instead of "will expire on Saturday," paragraph 7) By Ross Kerber Aug 2 (Reuters) - Traders sent U.S. Treasury yields lower on Monday on a soft manufacturing report and as they positioned ahead of government funding plans. The benchmark 10-year yield was down 5.3 basis points at 1.1856% in morning trading, continuing a pattern of declines playing out since the spring. It touched as low as 1.184%, its lowest since July 20, shortly after a report from the Institute for Supply Management showed U.S. manufacturing continued to grow in July, but at a slower pace for the second straight month. The report reinforced the idea that economic growth may have peaked, said Jim Barnes, director of fixed income for Bryn Mawr Trust, driving investors to buy the safe Treasuries. "It"s the theme where supply constraints may be constraining economic growth," he said. The yield on 10-year Treasury Inflation Protected Securities was at -1.185% after reaching as low as -1.194%, its latest record low, as investors priced in higher inflation expectations. The demand for Treasuries came despite higher equity markets on Monday on anticipation of infrastructure spending and strong second-quarter earnings. A surge in U.S. COVID-19 cases stemming from the highly infectious Delta variant, particularly in areas with lower vaccination rates, threatens to interrupt previous forecasts of a strong economic recovery. Traders will learn more context later on Monday when the Treasury announces its funding plans for the third quarter. The government’s two-year debt ceiling suspension expired on Saturday, though it is expected to be able to get by until October or later by using extraordinary measures. These may include suspending some investments and security issuance. The trading sent lower 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. It was 101 basis points, about 3 basis points lower than Friday"s close. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 1.2 basis points at 0.1761%. August 2 Monday 10:50AM New York / 1450 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0475 0.0482 0.002 Six-month bills 0.0525 0.0532 0.000 Two-year note 99-230/256 0.1761 -0.012 Three-year note 100-38/256 0.3244 -0.024 Five-year note 99-210/256 0.6617 -0.041 Seven-year note 100-64/256 0.9629 -0.049 10-year note 104-12/256 1.1856 -0.053 20-year bond 107-248/256 1.7707 -0.038 30-year bond 111-160/256 1.8645 -0.030 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 0.25 spread U.S. 3-year dollar swap 12.00 -0.25 spread U.S. 5-year dollar swap 9.00 0.25 spread U.S. 10-year dollar swap 2.25 0.00 spread U.S. 30-year dollar swap -25.25 -0.75 spread (Reporting by Ross Kerber in Boston; Editing by Andrea Ricci) Our Standards: The Thomson Reuters Trust Principles.