TREASURIES-US yields end week with steep rise amid uncertain rate outlook

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Fed's data dependency affects rate cut expectations

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Dissent within FOMC surprises markets, affects rate outlook

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Markets will follow ADP, Revelio Labs, ISM data next week

(Updates yields, includes analyst report, monthly milestones)

By Tatiana Bautzer

NEW YORK, Oct 31 (Reuters) - U.S. Treasury yields were narrowly mixed on Friday, but rose sharply for the week to multi-month highs, as growing uncertainty over further rate cuts and the prolonged federal government shutdown clouded the market outlook.

On the month, however, U.S. yields were little changed overall.

Comments by Federal Reserve Chair Jerome Powell after the interest rate cut announcement on Wednesday poured cold water on the optimism for another 25 basis-point ease in December.

"He basically reminded markets that the Fed is still data-dependent and there is no data at the moment," said Gennadiy Goldberg, TD Securities' head of U.S. rates strategy in New York.

While the government shutdown continues, policymakers, like the rest of the market, have to settle for discerning economic conditions from secondary private sector data. Even if the divided Congress manages to reach a spending deal in the coming days, it is almost certain that next week's payrolls report will not be released, meaning the Fed will not have a clear picture of the economy.

Next week, markets will look for insight on the pace of hiring on Wednesday's ADP report for October and job creation estimates at Thursday's Revelio Labs. The ISM Manufacturing and Services surveys will play an important role in helping investors estimate activity.

"Private data will be more influential than usual in the Fed's rate decision - even if policymakers ultimately head into the meeting with all the data they would have gotten if the government shutdown wasn't a factor," BMO analysts led by Ian Lyngen said in a note to clients.

On Friday, the yield on the benchmark U.S. 10-year Treasury note was up 0.4 basis points to 4.097%, and saw its biggest weekly rise since April. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, slipped 1.6 basis points to 3.598. The yield recorded its largest weekly rise since April.

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 positive 48.7 basis points.

Dissent within the Federal Open Market Committee surprised markets with Kansas City Fed President Jeffrey Schmid voting to hold rates steady, citing inflation risks. Federal Reserve Bank of Dallas President Lorie Logan added on Friday that she saw the Wednesday rate cut as not needed. Governor Stephen Miran, meanwhile, voted for a 50-basis-point rate cut, marking the first two-sided dissent since September 2019.

On Friday, markets estimated a 65% chance of another 25 basis point rate cut in December, according to CME's FedWatch tool, sharply down from the 90% before the FOMC meeting.

Markets will also be attentive to the release on Monday of the Treasury Department's quarterly financing estimates and the refunding plan on Wednesday. (Reporting by Tatiana Bautzer; Editing by Joe Bavier and Lisa Shumaker)