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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

(Updated at 2:53 p.m. EDT/1853 GMT)

By Chuck Mikolajczak

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

declined on Tuesday, easing 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 3.9 basis points to 4.034%.

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 declined 5.8

basis points to 4.324%.

Markets are now pricing in a 94.1% chance for a cut of 25

bps at the Fed's next meeting, with only a 5.9% 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 7.8 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 Bank of San Francisco President Mary Daly

said the central bank remains on track for more rate cuts this

year as long as data meets expectations, while noting that even

with last month's rate cut, monetary policy is still working to

bring inflation pressures down.

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

typically moves in step with interest rate expectations, edged

up 1.1 basis points to 3.982%.

Federal Reserve Bank of Atlanta President Raphael Bostic is

scheduled to speak later on Tuesday.

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

Inflation-Protected Securities (TIPS) was last at

2.239% after closing at 2.283% on October 11.

The 10-year TIPS breakeven rate was last at

2.291%, indicating the market sees inflation averaging about

2.3% a year for the next decade.