CORRECTED-TREASURIES-US yields decline after Christmas break

By Matt Tracy

Dec 26 (Reuters) - U.S. Treasury yields declined on Friday following Christmas Day to cap off a quiet holiday-shortened week.

The yield on 10-year Treasury notes US10YT=RR dipped 1.3 basis points (bps) from Christmas Eve's early market close and was last at 4.121%.

The yield on the 30-year Treasury bond US30YT=RR also fell 15 bps and last stood at 4.798%.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 3.1 bps at 3.479%.

A closely watched part of the yield curve, the gap between two- and ten-year yields, last stood at 64.1 bps.

Market expectations for a cut in a key interest rate by the Federal Reserve at its January meeting last stood at 17.7%, according to CME Group data. They dipped slightly following data earlier in the week showing lower-than-expected initial jobless claims in the week before, as well as a decline in consumer sentiment.

"(In) cutting rates further there is an increased risk in pushing long-term bond yields higher and undermining the dollar," said Eric Teal, chief investment officer for Comerica Wealth Management, in a written note before the Christmas holiday.

The Treasury Department scheduled several major debt auctions this holiday week. An auction of $44 billion in seven-year notes US7YT=RR on Wednesday was in line with investor demand for previous such auctions.

Treasury auctions earlier in the week of $70 billion in five-year notes US5YT=RR on Tuesday and Monday's $69 billion two-year note auction saw a lower bid-to-cover ratio than previous such auctions.