TREASURIES-US yields modestly higher after data as focus shifts to Fed

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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

(Updates with afternoon trading)

By Chuck Mikolajczak

NEW YORK, Dec 9 (Reuters) - Most U.S. Treasury yields advanced on Tuesday, erasing earlier declines after a report on the labor market and before 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 jumping higher after the Labor Department said job openings rose by 12,000 to 7.67 million on the last day of October, well above the 7.15 million estimate of economists polled by Reuters.

"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 grappling 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 1.4 basis points to 4.186% after hitting a session low of 4.141% and was on pace for its first four-session streak of gains in five weeks.

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.

"What comes out tomorrow is going to be interesting. The expectation from us as well as everybody else is that they'll cut, but then kind of keep their options open on when the next policy move is going to be based on incoming data," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.

"They delivered like three kind of somewhat preemptive rate cuts, the economy is still relatively resilient, I just don't see any need to rush into any more cuts until they have additional information to warrant easing," Rajappa said. 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 rate reductions of 25 basis points each 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 87.4%, according to CME's FedWatch Tool.

The yield on the 30-year bond slipped 0.5 basis point to 4.81%, having recovered from the session low of 4.775%.

Analysts viewed the $39 billion auction of 10-year notes as solid, noting that demand was 2.55 times the amount for sale. More supply will come to the market on Thursday in the form of $22 billion in 30-year bonds.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, which investors view as an indicator of economic expectations, was at a positive 57.3 basis points. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, gained 2.8 basis points to 3.611%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.323% after closing at 2.335% on Monday.

The 10-year TIPS breakeven rate was last at 2.264%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski and Lisa Shumaker)