TREASURIES-US yields lower as data-starved markets digest consumer reading

WASHINGTON, Oct 10 (Reuters) - Benchmark U.S. yields were lower on Friday morning after a much-anticipated reading on consumer sentiment, some of the only data available to investors as the federal government entered the tenth day of a shutdown.

With the federal agencies that produce economic indicators shuttered since the start of the government's fiscal year, numbers from other sources have taken on unusual importance, with investors parsing them for scarce clues as to the direction of the world's largest economy.

However, yields appeared little changed after the University of Michigan's consumer survey came in stronger than expected but nevertheless showed a third straight monthly decline, readings that have added to worries about the labor market. Elsewhere, private indicators have pointed to several months of weakness in hiring.

Federal Reserve Governor Christopher Waller told CNBC the central bank could make "cautious" moves to lower benchmark lending rates.

Robert Tipp, chief investment strategist and head of global bonds at PGIM, said that while U.S. Treasuries had been range-bound in recent days during the shutdown, markets were warming to the notion that the central bank was likely to move judiciously in easing monetary policy rather than be "unduly dovish."

"I think we've gone from an environment that is kind of range-bound on the 10-year... to a notion of the economy that is softer and that the Fed is getting some conviction to go down towards neutral and it's not gonna be a large slide," he said.

President Donald Trump's attempt to fire Fed Governor Lisa Cook had been slowed by the federal courts for now, he added.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB fell 5 basis points to 4.098%. The yield on the 30-year bond US30YT=TWEB fell 5.7 basis points to 4.676%.

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 52.0 basis points.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 2.3 basis points to 3.576%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.401% after closing at 2.425% on October 9.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.339%, indicating the market sees inflation averaging about 2.3% a year for the next decade.