TREASURIES-US yields flat to modestly higher as market in holding pattern

WASHINGTON, Oct 9 (Reuters) - U.S. Treasury yields were little changed on Thursday, edging slightly higher as the ongoing federal government shutdown continued to cloud sentiment, leaving the market largely in a holding pattern.

A generally well-received auction of long-term bonds also did little to shift market direction.

Two-year and benchmark 10-year Treasuries have moved in a narrow band since lawmakers in Washington failed to agree on spending legislation ahead of a September 30 deadline. So far, there are few indications an end to the impasse is near.

The two-year yield was last up 1.3 basis points (bps) at 3.597% US2YT=RR, while the 10-year yield was up marginally at 4.142% US10YT=RR.

Yields on the 30-year bonds were last slightly down on the day at 4.723% US30YT=RR following a $22 billion U.S. Treasury sale that showed strong demand overall.

The auction saw record-high end-user demand and an all-time low in the share taken by primary dealers, suggesting minimal need for dealer support amid robust investor appetite.

Will Compernolle, macro strategist at FHN Financial in Chicago, said market signals were less likely to be meaningful so long as investors lacked developments to push them in any particular direction, such as cues from government economic data.

"If the jobs report comes out and gives a clear signal, then any of the moves we've seen this week are going to quickly reverse," he said, adding that yields and auctions were less reliable indicators of investor demand during a "weird week."

"If the Treasuries are drifting aimlessly this week, then these auctions are taking the pulse at a weird time."

The University of Michigan on Friday is due to release its monthly report on consumer sentiment, an indicator likely to receive unusual scrutiny in the absence of official data due to the government shutdown.

Meanwhile, Federal Reserve Governor Michael Barr said in a speech on Thursday that the central bank should be "cautious" about cutting benchmark interest rates due to the risk of persistent inflation. The central bank's policymaking committee has nevertheless signaled it is likely to cut rates when it meets later this month.

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, steepened to 54.3 bps US2US10=TWEB, compared with 53.3 bps late on Wednesday.

The steeper curve suggested that traders are pricing an imminent rate cut from the Fed.

The U.S. rate futures market on Thursday had priced in a 94% chance the Fed will cut by 25 bps later this month, factoring in about 45 bps in easing this year, according to LSEG calculations.