* Positioning ahead of Fed policy meeting next week
* Possibility Fed could announce balance sheet unwind next week
* Yield curve flattened a little bit (Adds economist's comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, July 17 (Reuters) - U.S. Treasury yields drifted lower on Monday, trading in narrow ranges, after falling the previous session on soft U.S. inflation and retail sales data ahead of the Federal Reserve's monetary policy meeting next week.
Yields, which move inversely to prices, tumbled to multi-week lows on Friday as a round of weak U.S. data dimmed expectations for an interest rate hike in December.
"Monday's move could be positioning ahead of next week's Federal Reserve meeting," said Tom Simons, money market economist at Jefferies & Co in New York.
Fed funds futures continue to show less than a 50 percent chance of a rate hike in December in the wake of Fed Chair Janet Yellen's cautious stance on tightening in her congressional testimony last week and Friday's tame U.S. inflation data.
But some analysts wondered whether the Fed could discuss the impending reduction of the central bank's balance sheet at next week's policy meeting.
Research firm Action Economics said in a blog there was a chance the Fed could announce the start of the balance sheet unwinding as soon as next week given the strong U.S. jobs numbers and the overall positive growth path.
"If anything, we should expect the curve to steepen a little bit this week," said Jefferies' Simons. "The move away from rate hikes is more friendly on the front-end to the intermediate term, while the reduction of the balance sheet is more negative for the long end of the curve."
However, that curve steepening could take time to play out.
On Monday, the yield gap between shorter-dated and longer-dated Treasuries slipped, with the spread between five-year and 30-year yields narrowing to 104 basis points .
The same was true for the spread between U.S. two-year and 10-year notes, with the gap shrinking a little bit to 94.6 basis points.
The market was also focused on this week's heavy calendar of U.S. corporate bond issuance, especially after the end of the earnings reporting season, analysts said, with corporates keen to lock in Treasury rates. This could go on for much of the week, analysts said.
Action Economics said many financials will exit their blackout periods and are expected to lead corporate bond issuance, such as those from JP Morgan Chase and Wells Fargo.
In late trading, U.S. 10-year yields fell to 2.310 percent , from 2.319 percent late on Friday.
U.S. 30-year bonds were yielding 2.896 percent, down from 2.910 percent on Friday.
U.S. two-year yields were up slightly at 1.359 percent, from Friday's 1.355 percent. (Editing by Bernadette Baum and Richard Chang)