TREASURIES-US yields mixed ahead of expected Fed rate-cut pause, after soft 5-year auction

By Tatiana Bautzer

NEW YORK, Jan 27 (Reuters) - U.S. Treasury yields were mixed on Tuesday, with longer-dated maturities climbing, as investors awaited a Federal Reserve decision that is expected to hold interest rates steady, while digesting data that showed consumer confidence fell sharply this month.

U.S. yields also drifted higher after a lackluster auction of $70 billion in five-year notes, in stark contrast to Monday's sale of two-year notes that produced strong results.

The five-year auction was priced at 3.823%, higher than the expected yield at the bid deadline, suggesting investors demanded a premium to take down the note. The bid-to-cover ratio, another measure of risk appetite, was at 2.34, down slightly from a six-auction average of 2.36.

"Demand was mediocre, very different from what we saw at the Monday two-year note auction," said Lou Brien, market strategist at DRW Trading in Chicago.

In afternoon trading, the yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB rose 3 basis points (bps) to 4.241%, while 30-year yields US30YT=TWEB climbed 5.2 bps to 4.856%.

Post-auction, yields on five-year notes were up 1.2 bps at 3.827% US5YT=RR.

On the shorter end of the curve, the two-year US2YT=TWEB yield, which reflects interest rate expectations, slipped 1.7 bps to 3.573%.

CONSUMER CONFIDENCE DOWN

Treasury yields edged higher on the long end of the curve after data showed U.S. consumer confidence slumped to the lowest level in more than 11-1/2 years in January, amid mounting anxiety over a sluggish labor market and high prices that could make households more cautious about spending.

While the relationship between confidence and consumer spending has been weak, some economists were concerned that the slump could be accompanied by poor perceptions of the labor market. Consumers' views of job availability were the weakest in nearly five years.

The data, however, did not change the market's 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.

Investors will focus on Federal Reserve Chair Jerome Powell's press conference on Wednesday for any guidance on the outlook for monetary policy.

"His comments on the labor market weakness are important now," DRW's Brien said.

Powell has two more Open Market Committee meetings before the end of his term in May.

"Everyone will be trying to read tea leaves, as Powell does not seem keen to give a lot of forward guidance," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.

Investors are not very worried about the risk of a partial shutdown of the U.S. government, Goldberg said. A shutdown is under consideration among Democratic U.S. senators, who want to cut funding to the Department of Homeland Security after federal immigration agents in Minneapolis shot and killed a 37-year-old man.

Removing funding for the department would require a new vote in the House of Representatives, which would not be possible before the government runs out of money at the end of the month.

"Even if we have some days of shutdown, there is the risk of disrupting the release of payrolls data", Goldberg added.