TREASURIES-US Treasury yields rise ahead of key inflation data

Adds context on data released

NEW YORK, Feb 27 (Reuters) - U.S. Treasury 10-year yields rose on Thursday as markets awaited a key inflation report and digested mixed economic numbers that contrasted with recent downbeat reports that had pushed yields to their lowest levels of the year earlier this week.

Orders for long-lasting manufactured goods rose 3.1% in January, following a downwardly revised 1.8% December drop. Economists polled by Reuters forecast a 2% rise.

The report is not usually a market mover, but yields ticked higher after it came out alongside data showing no change in the initial read of fourth-quarter gross domestic product rising at a 2.3% rate and initial unemployment claims climbing to 242,000 last week, the largest weekly increase in five months.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB rose 4.1 basis points to 4.29%. The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, rose 3.2 basis points to 4.104%.

On Wednesday the two-year yield fell to its lowest since early November and the 10-year fell to its lowest since December 11.

Weak consumer confidence, manufacturing, retail sales and home sales data in recent weeks sparked a rally in bonds that pushed yields lower, with investors moving out of stocks into the safety of Treasury markets amid worries about how Trump administration tariff policies will affect growth and inflation.

"The data today was not surprising, the bonds seem to be falling as the stock market rises", said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. Earlier in the week, stock market indexes were down and the risk-off movement favored Treasuries.

The market is now hanging on Friday's Personal Consumption Expenditures price index report to see if inflation is more contained than hotter-than-expected January consumer price data, which rattled markets two weeks ago, had suggested.

The key question is whether the PCE index will be tame enough to allow the Federal Reserve to return to its easing track in coming months after pausing on rate cuts in January.

Traders in Fed funds futures 0#FF: now see the Fed cutting interest rates for the first time in 2025 in June, having earlier in the week bet on July. Futures are now showing expectations of at least two cuts this year.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 18.5 basis points, a touch steeper than late Wednesday's +18.2 basis points.

The yield on the 30-year bond US30YT=TWEB was up 3.4 basis points at 4.541%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.614% after closing at 2.583% on Wednesday.