TREASURIES-US yields decline after Christmas break

By Matt Tracy

Dec 26 (Reuters) - U.S. Treasury yields declined on Friday following Christmas Day to cap off a quiet holiday-shortened week.

The yield on 10-year Treasury notes dipped 1.3 ?basis points (bps) from Christmas Eve's early market close and was last at ?4.121%.

The yield on the 30-year Treasury bond also ?fell 15 bps and last stood at 4.798%. The ?two-year U.S. ?Treasury yield, which typically moves in step with interest rate expectations, was ?down 3.1 bps at 3.479%.

A closely ?watched part of the yield curve, the gap between two- and ten-year yields, last stood ?at 64.1 bps.

Market expectations ?for a ?cut in a key interest rate by the Federal Reserve at its January meeting last stood at ?17.7%, according to CME Group data. They dipped slightly following data earlier in the week showing lower-than-expected initial jobless claims in the week before, as well as a decline in consumer sentiment.

"(In) cutting rates further there is ?an ?increased risk in pushing long-term bond yields higher and undermining the dollar," said Eric Teal, chief investment ?officer for Comerica Wealth Management, in a written note before the Christmas holiday.

The Treasury Department scheduled several major debt auctions this holiday week. An auction of $44 billion in seven-year notes on Wednesday was in line with investor demand for previous such auctions.

Treasury auctions ?earlier in the week of $70 billion in five-year notes on Tuesday and Monday's $69 billion two-year note auction saw a lower bid-to-cover ratio than previous ?such auctions.

(Matt Tracy in Washington, Editing by Louise Heavens)