TREASURIES-US yields pare declines after data with Fed announcement on tap

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Job openings rise unexpectedly

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Fed expected to cut rates by 25 basis points

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Market anticipates "hawkish cut" with higher bar for future cuts

By Chuck Mikolajczak

NEW YORK, Dec 9 (Reuters) - U.S. Treasury yields were mostly higher on Tuesday, erasing earlier declines after data on the labor market and ahead of a Federal Reserve policy announcement in which the central bank is largely expected to cut interest rates. Yields were solidly lower on the session before moving sharply higher after the Labor Department said job openings, a measure of labor demand, were up 12,000 to 7.670 million by the last day of October, well above the 7.150 million estimate of economists polled by Reuters, in its Job Openings and Labor Turnover Survey, or JOLTS report.

"It was a bit of a surprise that job openings increased, but we're in a very funny period with the government shutdown," said Tom di Galoma, managing director at Mischler Financial Group in Stamford, Connecticut. "Every agency and every private company that forecasts any kind of job data or pretty much any kind of economic data at this point is behind the curve... but the market did sell off, the curve flattened. It's certainly a bearish result." Market participants have been dealing with the backlog of economic data due to the 43-day government shutdown that ended recently, with some releases being canceled outright or on a delayed schedule. The yield on the benchmark U.S. 10-year Treasury note rose 0.8 basis point to 4.18% after hitting a session low of 4.141%.

Markets are largely expecting the central bank to cut rates by 25 basis points on Wednesday, with many market participants anticipating a "hawkish cut," in which the Fed may slow or halt the path of interest rate cuts. Several major brokerages recently forecast a cut by the Fed, with Morgan Stanley reverting to its prior call for a 25-basis point cut, followed by two more cuts of 25 basis points in January and April. The firm also expects the December cut to come with messaging for a "higher bar for cuts moving forward." Expectations for a cut of 25 basis points are at 89.2%, according to CME's FedWatch Tool. The yield on the 30-year bond fell 0.7 basis point to 4.809% up from the session low of 4.775%.

After a solid auction of $58 billion in three-year notes on Monday, more supply will come to the market this week as Treasury auctions $39 billion in 10-year notes on Tuesday and $22 billion in 30-year bonds on Thursday. 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 57.4 basis points. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 1.9 basis points to 3.602%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.326% after closing at 2.335% on Monday. The 10-year TIPS breakeven rate was last at 2.265%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak, Editing by Nick Zieminski)