TREASURIES-US yields flat ahead of auction as Fed path weighed

NEW YORK, Aug 28 (Reuters) - U.S. Treasury yields were little changed on Wednesday as investors awaited an auction later in the day and gauged the Federal Reserve's plans for interest rates.

Investors have completely priced in a rate cut from the Fed of at least 25 basis points at its mid-September policy meeting, with expectations for a 50-bps cut at 34.5%, up from 11.3% a month ago, according to CME's FedWatch tool.

Yields have been declining as economic data has signaled a softening economy and inflation has resumed cooling, leading Fed Chair Jerome Powell to signal last week a shift in the central bank's focus to supporting the labor market over combating inflation.

"A lot of people are just kind of waiting for the September meeting," said Tom di Galoma, managing director and head of fixed income at Curvature Securities in Park City, Utah.

"The Fed is certainly ready to cut rates, I'm looking for 50 basis points in September. I'm probably an outlier, but the Fed probably wants to make the first move a substantial one, they want to probably get the economy going a little bit."

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative-3.4 bps after narrowing to a negative-2.79 bps, its highest level since Aug. 8.

The narrower inversion suggested that the bond market is pricing in the Fed's easing cycle.

The yield on the benchmark U.S. 10-year Treasury note fell 0.6 bps to 3.827%.

Trading activity was dampened ahead of Monday's U.S. Labor Day holiday.

The yield on the 30-year bond fell 0.9 bps to 4.119%.

Treasury is scheduled to auction $70 billion in five-year notes, which investors will eye for signs of demand for debt. A July auction tailed by 1.1 bps, and the one-year average tail is 0.3 bps, according to Deutsche Bank. The yield was last flat at 3.653%.

A two-year note auction of $69 billion on Tuesday was solid, with more supply coming on Thursday with $44 billion in seven-year notes.

The two-year U.S. Treasury yield, which typically moves in step with interest-rate expectations, fell 0.6 bps to 3.859%.

The break-even rate on five-year U.S. Treasury Inflation-Protected Securities was last at 2.041% after closing at 2.042% on Aug. 27.

(Reporting by Chuck Mikolajczak; Editing by Rod Nickel)