TREASURIES-Yields rise before two-year auction

By Karen Brettell

NEW YORK, Dec 23 (Reuters) - U.S. Treasury yields rose before the sale on Monday of $69 billion in two-year Treasury notes, with volumes expected to be muted this week while many traders are away before Wednesday's Christmas holiday.

Monday's Treasury Department auction will be the first of $183 billion in supply this week, which will also include $70 billion in five-year notes on Tuesday and $44 billion in seven-year notes on Thursday.

The auctions will test demand for U.S. government debt following a selloff sparked in part by concerns that inflation will remain stubbornly elevated above the Fed's 2% annual target.

Federal Reserve policymakers last week slashed their rate cut projections for 2025 to 50 basis points, from 100 basis points, and increased their expectations for inflation.

The U.S. central bank cut interest rates by 25 basis points as expected, but Fed Chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering inflation.

Data on Monday showed that new orders for key U.S.-manufactured capital goods surged in November amid strong demand for machinery and electrical products, offering more signs that the economy is on solid footing as the year ends.

Benchmark 10-year note yields were last up 3.2 basis points at 4.556%. They reached 4.594% on Thursday, the highest since May 30.

Two-year note yields, which are highly sensitive to Fed interest-rate policy, rose 1.7 basis points to 4.329%.

The yield curve between two- and 10-year notes steepened by around a basis point to 22.5 basis points. It reached 27.6 basis points on Thursday, the steepest since June 2022.

The bond market will close early on Tuesday and be closed on Wednesday for the Christmas holiday. (Reporting by Karen Brettell; Editing by Howard Goller)