TREASURIES-US yields mixed ahead of expected Fed rate-cut pause; investors focus on auctions

By Tatiana Bautzer

NEW YORK, Jan 27 (Reuters) - U.S. Treasury yields were mixed on Tuesday as investors positioned ahead of a Federal Reserve policy decision that is widely expected to leave interest rates unchanged, while also eyeing a five-year note auction for fresh signals on demand for U.S. government debt.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB was slightly up at 4.217%, while 30-year yields rose 1.6 basis points (bps) to 4.820% US30YT=RR.

On the short end of the curve, the two-year US2YT=TWEB yield, which typically reflects interest rate expectations, slipped 2.8 basis points to 3.569%.

Treasuries, however, hardly reacted to data showing an unexpected drop in U.S. consumer confidence in January to its lowest level since 2014. That data did not change the market expectation that the Fed will keep interest rates unchanged at the end of its two-day meeting on Wednesday. CME Group's FedWatch tool on Tuesday showed more than a 97% chance that the U.S. central bank would leave its benchmark interest rate unchanged in the 3.50%-3.75% range, unchanged from Monday.

The Treasury is also expected to sell $70 billion in five-year notes on Tuesday and $44 billion in seven-year notes on Thursday.

"Markets seem to be reacting to the supply this week," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. "We are also on waiting mode for the end of the month and watching equities for a potential rebalancing into fixed income," he added. Major U.S. stock indexes were largely trading higher.

Investors do not seem to see a high risk of a partial shutdown of the U.S. government, LeBas said. A shutdown is being considered by Democratic U.S. senators mainly to cut funding to the Department of Homeland Security after federal immigration agents in Minneapolis shot and killed a 37-year-old man.

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 64.0 basis points.