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New York Fed's factory activity gauge fell to -11.9 in

October

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10-yr yield still above 4%

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Retail sales data due later this week

By Chuck Mikolajczak

NEW YORK, Oct 15 (Reuters) - U.S. Treasury yields were

mostly lower on Tuesday, pausing after a recent run to the

upside that sent the benchmark 10-year note to a 2-1/2 month

high, following a soft reading of manufacturing activity in New

York State.

The New York Fed's monthly gauge of factory activity in the

state fell to a negative 11.9 in October from the prior 11.5 in

September. Readings above zero indicate expanding activity.

Economists polled by Reuters had expected another month of

expanding activity with a median forecast of 3.85.

"Yield to the upside kind of ran its course at this point and

you just needed a small catalyst to kind of create a soft cap at

this point, that's all it is," said Jim Barnes, director of

fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

"You'd probably need to have some type of material catalyst

in order for it to keep running higher and since we really

haven't had that at this point now, it's probably just going to

be range bound until we can get evidence as to what might factor

into what the Fed will do going forward."

The yield on the benchmark U.S. 10-year Treasury note

fell 3.5 basis points to 4.038%.

The 10-year yield has risen for four straight weeks,

reaching 4.12% last week, its highest since July 31 in the wake

of a strong payrolls report that diminished expectations for

another outsized rate cut of 50 basis points (bps) from The

Federal Reserve at its November policy meeting.

The yield on the 30-year bond fell 5 basis

points to 4.332%.

Markets are now pricing in a 90.2% chance for a cut of 25 bps at

the Fed's next meeting, with a 9.8% chance the central bank will

hold rates steady, according to CME's Fedwatch Tool.

Expectations for a 50 bps cut were at 27% a month ago.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at a positive 10.3 basis points.

Comments from Fed officials, including Chair Jerome Powell,

have signaled a shift in focus from combating inflation to labor

market stability while also being deliberate in the path of

future rate cuts. Investors will eye data on the health of the

consumer on Thursday with retail sales numbers for September.

Federal Reserve Governor Christopher Waller on Monday called for

"more caution" on interest-rate cuts ahead, citing a recent

uptick in inflation and data showing the U.S. economy and labor

market are stronger than previously thought

The two-year U.S. Treasury yield, which

typically moves in step with interest rate expectations, fell

0.8 basis points to 3.933%.

Fed officials scheduled to speak on Tuesday include Governor

Adriana Kugler, San Francisco President Mary Daly and Bank of

Atlanta President Raphael Bostic.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.251% after closing at 2.283% on October 11.

The 10-year TIPS breakeven rate was last at

2.309%, indicating the market sees inflation averaging about

2.3% a year for the next decade.