TREASURIES-US bonds dip after lackluster auctions; focus on FOMC

* Heavy Treasury supply prompts investor selling, tests demand

* US note auctions viewed as fair to middling

* Investors also worried about US-Iran stalemate

* J.P. Morgan expects Fed to hold rates through H1 2027 (Adds comments, auction results, updates yields)

By Gertrude Chavez-Dreyfuss

NEW YORK, April 27 (Reuters) - U.S. Treasuries fell on Monday after generally softer-than-expected front-end auctions highlighted lingering concerns about investor appetite for government debt at a time of possibly heavy issuance and elevated yields.

Ahead of auctions, investors typically sell Treasuries to push yields higher before buying them back at lower prices once new supply is absorbed - a process known in the market as building a concession.

The U.S. Treasury on Monday sold $166 billion in U.S. 13-week and 26-week bills as well as $139 billion in two-year and five-year notes. On Tuesday, the government will auction $44 billion in seven-year notes.

Monday's overall weak reception for Treasury notes underscored the challenge the government faces in attracting demand as high supply coincides with uncertainty over the outlook for monetary policy and inflation.

In afternoon trading, the benchmark 10-year yield, which moves inversely to Treasury prices, rose 2.8 basis points to 4.338%. Last Friday, the yield posted its biggest weekly increase since mid-March.

U.S. 30-year yields were up 2.8 bps as well at 4.944% .

On the shorter end of the curve, U.S. two-year yields, which reflect interest rate expectations, climbed 2.6 bps to 3.802% . Last Friday, two-year yields also posted the largest weekly increase since March 16.

The outcome of the two-year note auction was fair to slightly weak, pricing at a yield marginally above the rate indicated at the bid deadline, a sign investors demanded a little bit of a concession to take down supply.

The five-year sale was more clearly underwhelming, with weaker demand metrics pointing to investor caution toward intermediate maturities, seen as particularly exposed to shifts in expectations around the path of Federal Reserve interest rates.

End-user demand for the five-year note, which combines both indirect and direct bids, was a tad lower at 87%, compared with the 12-auction average of roughly 89%.

"Both auctions tailed ... and the five-year had slightly below average end-user takedown," said Jan Nevruzi, U.S. rates strategist at TD Securities in New York. When an auction tails, it means investors demanded a higher yield for the debt than what the market expected.

He added that the weak auctions are not a major worry. "We would look for much more material deterioration in metrics before getting concerned. We will watch the seven-year auction tomorrow."

IRAN DEVELOPMENTS; FED MEETING

Investors are also watching a diplomatic stalemate, as negotiations aimed at ending the Middle East conflict show little sign of progress.

Iranian sources disclosed Tehran's latest proposal on Monday, which would defer talks about Iran's nuclear program until the U.S. ceases hostilities and shipping from the Gulf resumes. That is unlikely to satisfy Washington, which had said that nuclear issues must be addressed from the outset.

President Donald Trump discussed the Iranian proposal on Monday with his top national security aides.

Investor focus will also turn to the Federal Open Market Committee meeting, which ends on Wednesday. This would be Jerome Powell's last scheduled meeting as Fed chair.

J.P. Morgan said in a research note it expected the Fed to hold rates steady through the first half of 2027, noting that money markets are also pricing in a Fed pause until deep into next year. The U.S. bank said it sees some risk of Fed tightening in the second half of 2027.

"Investors will likely be looking for any changes in wording around inflation progress and economic momentum," said Anthony Saglimbene, chief market strategist at Ameriprise.

"In our view, markets could be sensitive to whether the Fed explicitly references higher oil prices and, if so, whether those pressures are framed as persistent or temporary. Language around 'patience' and 'sufficiently restrictive' policy will be closely watched as well." (Reporting by Gertrude Chavez-Dreyfuss; Editing by Alison Williams and Lisa Shumaker)