TREASURIES-US yields inch higher midday in holiday week start

(Updates with latest market movements and commentary throughout)

By Matt Tracy

Dec 22 (Reuters) - Benchmark U.S. 10-year Treasury yields inched higher midday on Monday as the market entered the holiday-shortened week.

The yield on 10-year Treasury notes was last up 1.2 basis points at 4.162%.

The two-year U.S. Treasury yield, which typically moves in step with ?interest rate expectations, was last up 1.7 bps at 3.502%.

The yield on the 30-year Treasury bond was up 0.7 bps ?at 4.828%.

Yields were largely unmoved following the release on Monday of the Chicago Federal ?Reserve's national activity index.

A closely watched part of the U.S. ?Treasury yield curve measuring the ?gap between yields on two- and 10-year Treasury notes, which is seen as an indicator of economic expectations, was ?at 65.9 bps.

The U.S. dollar 5-year forward inflation-linked ?swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the U.S. central bank's quantitative easing, was ?last at 2.45%.

The Treasury Department will hold ?several auctions ?this week. It will auction $69 billion in two-year notes later on Monday afternoon, then $70 billion in 5-year notes on Tuesday and $44 billion in seven-year notes on Wednesday.

Monday's two-year ?note auction will likely meet with sufficient demand in line with market expectations, BMO's U.S. rates strategist Vail Hartman and his colleagues said in a Monday note.

"The ongoing compression in Treasury volatility bodes well for bidding conviction, as does the lack of near-term event risk on the economic data calendar," they wrote.

Odds of a Fed rate cut at the ?policy meeting ?in late January are priced as low as just under 20%, according to CME Group data, despite recent U.S. data showing the consumer price index rose at ?a 2.7% annualized rate in November.

"If the next payrolls report (or) the next CPI print are very soft, that will be meaningful and I expect the market would adjust the odds of a January cut accordingly," said Eric Winograd, director of developed market economic research at AllianceBernstein.

"I don't think there is anything coming out this week that can or should change the market's view - we'll have to ?wait until January to get first-tier data that might move the needle or speeches from key members of the FOMC," Winograd added.

Bond markets will close early at 2 p.m. EST on Wednesday (1900 GMT) and remain shut ?through Christmas Day on Thursday. (Reporting by Matt Tracy; Editing by Paul Simao and Chris Reese)