NEW YORK, June 25 (Reuters) - U.S. Treasury yields were

slightly higher on Tuesday amid low trading volumes and ahead of

new government debt issuance, with inflation data out of Canada

creating some jitters among U.S. debt investors.

Treasury yields, which move inversely to prices, were moving

lower in early morning trade but the release of Canada inflation

data, which surprised on the upside, reversed that trend.

Later on Tuesday, the Treasury will sell $69 billion in

two-year Treasury notes. While Treasury auctions this month have

gone well, with buyers paying up to absorb issuance, the picture

could be more complicated for two-year paper, which tends to be

more closely linked to monetary policy expectations.

"Treasuries had a good bid this morning until the CPI

(consumer price index) data in Canada came out and wiped away

the Treasury rally," said Tony Farren, managing director at

Mischler Financial Group.

Trading volumes were "very low" on Tuesday, he added, which

may complicate the scheduled sale of $183 billion in coupon debt

by the Treasury, split between two-year notes on Tuesday, and

five- and seven-year notes on Wednesday and Thursday.

Fed officials have reiterated in recent days that more

inflation data was needed to warrant a shift to a less

restrictive monetary policy stance, as the central bank seeks to

tame inflation without creating too much economic damage.

Federal Reserve Governor Michelle Bowman on Tuesday said

that holding the policy rate steady "for some time" will

probably be enough to bring inflation under control, but also

repeated her willingness to raise borrowing costs if needed.

"With the Fed outlook currently defined by the (Federal Open

Market Committee) FOMC's data dependent mantra, investors may

require a bit of a concession" for the two-year auction,

strategists at BMO Capital Markets said in a note.

A key data point for investors will come on Friday with the

release of May personal consumption expenditure data, which may

give more clues on the extent of any interest rate cuts by the

U.S. central bank later this year.

On Tuesday, traders of futures contracts tied to the Fed's

policy rate were betting on nearly two 25 basis point rate cuts

this year, with a first cut in September seen as having a 60%

probability.

Benchmark 10-year yields were last at 4.249%, slightly

higher than on Monday. Two-year yields were up just over one

basis point at 4.748%.

The gap between two- and ten-year yields remained deeply

negative at about minus 50 basis points - larger than on Monday.

An inversion in that part of the yield curve, which occurs

when shorter-dated Treasuries yield more than longer-dated ones,

has historically signalled a recession is coming.