TREASURIES-US yields fall with weaker consumer confidence and oil market selloff

(Rewrites throughout, adds analyst comment, auction results)

*

Investors optimistic about potential rate cuts later this year after Powell's comments

*

Although fragile, Israel-Iran ceasefire pushes oil prices lower

*

Demand at $69 billion two-year notes auction tepid, with high primary dealers stake

By Tatiana Bautzer, Davide Barbuscia

NEW YORK, June 24 (Reuters) - U.S. Treasury yields declined on Tuesday, with the two-year and 10-year notes hitting seven-week lows, as a weaker than anticipated reading of consumer confidence bolstered hopes of a near-term interest rate cut and oil prices continued to fall amid fragile optimism over a ceasefire between Israel and Iran. President Donald Trump on Monday announced a ceasefire between Israel and Iran that offered relief to rattled investors after a 12-day conflict that bruised global risk assets and stoked inflation fears. Markets welcomed the move and largely brushed off ceasefire violations by both sides. Oil prices fell almost 6% to a two-week low on Tuesday on expectations that the ceasefire will reduce the risk of oil supply disruptions in the Middle East. Although the price of bonds, which moves in the opposite direction of yields, had fallen briefly in the morning, it rose after U.S. Fed Chair Jerome Powell said on Tuesday he was open to the idea that any possible inflation kindled by Trump's tariffs may prove to be less severe than thought.

Those comments followed recent remarks from two Fed officials, both Trump appointees, who said rates could fall as soon as the July meeting, given that inflation has not yet risen in response to tariffs.

Adding downward pressure on yields, U.S. consumer confidence deteriorated in June, the Conference Board said on Tuesday. "The continued selloff in the crude oil market and the much weaker than anticipated reading of consumer confidence were news items helping out" the market, said Lou Brien, strategist at DRW Trading Group in Chicago.

"(Powell) is acknowledging that their forecasts could be wrong and if you look at the hard data itself you could probably argue that the Fed should be cutting right now," said Lawrence Gillum, chief fixed income strategist for LPL Financial. "He's open to being wrong, which is good," added Gillum.

Expectations for a 25 basis-point interest rate cut in July were roughly unchanged at 20% on Tuesday, CME Group data showed, while bets on a first 25-bps cut in September stood at 70%, compared with 67% on Monday.

TEPID AUCTION DEMAND

Although the yield on the $69 billion two-year note auction was the lowest in this kind of offerings this year, at 3.786%, demand was tepid, DRW's Brien said.

"The fact that the primary dealers ended up buying 13.2% of the sale, a percentage that is among the higher seen over the last year, is also a negative when judging demand," he added. The higher the percentage bought by the primary dealers, the less demand from the other auction participants.

Benchmark 10-year Treasury yields were at 4.287% late on Tuesday afternoon, down 3.5 basis points from Monday, while 30-year yields fell 3 basis points to 4.829%. The two-year yield, which typically moves in step with interest rate expectations, was down 2.1 basis points at 3.808%, the lowest since May 8.

The U.S. Treasury will sell five-year and seven-year debt on Wednesday and Thursday.

(Reporting by Davide Barbuscia and Tatiana Bautzer in New York; Editing by Nick Zieminski and Matthew Lewis)