TREASURIES-Yields slide on day as market digests Powell's cautious remarks

(Updates with latest market activity throughout)

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Treasuries slip after earlier gains on last week's Fed rate cut

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Market digests Fed Chair Powell's cautious remarks

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Treasury sold $69 billion in two-year notes Tuesday

By Matt Tracy

Sept 23 (Reuters) - U.S. Treasury yields declined on Tuesday following remarks by Federal Reserve Chair Jerome Powell pointing to caution around the U.S. central bank's next interest rate decision.

The benchmark U.S. 10-year Treasury note yield hit its highest since September 5 on Monday and was last down 2.6 basis points at 4.119%.

The 30-year bond yield, which gained for its fourth consecutive session on Monday, was last slightly down 2.5 bps from Monday's close at 4.736%. The yield declined after Powell, in a speech, cited the danger of cutting rates too quickly and risking a new surge of inflation, or reducing rates too slowly and possibly causing unemployment to rise unnecessarily. Fed Governor Bowman and Atlanta Fed President Raphael Bostic had similar sentiments in their own remarks on Tuesday. Yields rose last week despite the Fed's 25-basis-point rate cut and its signal for more easing at future meetings. They appear to have hit a quiet period this week as the market awaits further data for indications of the economy's direction and the chances of another rate cut or a rate pause at the Fed's October meeting.

"Many people are in wait-and-see mode," said Dominique Toublan, head of U.S. credit strategy at Barclays. "You still have unknowns, you still have risks."

Markets are pricing in a 92% chance of a 25 bp cut at the Fed's October meeting, and 8% odds of a pause. U.S. rate futures have also priced in 44 bps worth of cuts through the end of the year, according to LSEG data.

The two-year yield, which typically reflects interest rate expectations, was last down 0.9 bps from Monday's close at 3.592%. It hit a three-week high of 3.6% in afternoon trading on Monday.

"Our base case is still a cut in October and December ... but I don't think it's going to be a done deal," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.

A closely watched part of the U.S. Treasury yield curve measuring the gap between two- and 10-year Treasury notes , seen as an indicator of economic expectations, was last at 52.4 bps. Newly appointed Fed Governor Stephen Miran, the sole dissenter at last week's meeting in favor of steeper rate cuts, repeated his sentiments on Monday. In contrast, three Fed presidents all voiced caution around rate cuts in their own Monday remarks.

"So far, the hawks have been on parade. ... There are still worries about inflation and potentially central bank independence," Gennadiy added. Economic data was sparse on Tuesday, but included S&P Global's flash U.S. purchasing managers' index releases for September, which pointed to a slowing picture for services and manufacturing.

The Treasury Department auctioned $69 billion in two-year notes on Tuesday with a bid-to-cover ratio of 2.51x. It will auction a further $70 billion in five-year notes and $44 billion in seven-year notes later in the week. (Reporting by Matt Tracy, Editing by Nick Zieminski, Will Dunham and Richard Chang)