TREASURIES-US yields close higher to kick off holiday week

(Updates with latest market activity throughout)

By Matt Tracy

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

The yield on 10-year Treasury notes was last up 1.8 basis points at 4.168%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was ?last up 2.5 bps at 3.510%.

The yield on the 30-year Treasury bond was up 2 bps at 4.8415%.

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 2.46%.

The Treasury Department will hold several auctions this week. ?It auctioned $69 billion in two-year notes on ?Monday afternoon, which ?will be followed by $70 billion in 5-year notes on Tuesday and $44 billion in seven-year notes on Wednesday.

Monday's two-year note auction met with tepid investor demand. It had a bid-to-cover ?ratio of 2.54x, which was below 2.68x in the last November auction and a 2.60x average for the last ten such auctions. It had a high yield of 3.499%.

"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," BMO rates strategists wrote in a Monday note.

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, Chris Reese and Franklin Paul)