(Updates throughout)

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Treasuries slip after earlier gains on last week's Fed

rate cut

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Market digests Fed Chair Powell's cautious remarks

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Treasury sold $69 billion in two-year notes Tuesday

By Matt Tracy

Sept 23 (Reuters) - U.S. Treasury yields on Tuesday

inched lower following remarks from Federal Reserve Chair Jerome

Powell pointing to caution around the U.S. central bank's next

interest rate decision.

The benchmark U.S. 10-year Treasury note yield hit

its highest since September 5 on Monday and was last down 0.7

basis points at 4.138%.

The 30-year bond yield, which gained for its

fourth consecutive session on Monday, was last slightly down 0.7

bps from Monday's close at 4.754%.

The yield declined after

Powell, in a speech,

cited the danger of cutting rates too quickly and risking a

new surge of inflation, or reducing rates too slowly and

possibly causing unemployment to rise unnecessarily. Fed

Governor Bowman and Atlanta Fed President Raphael Bostic had

similar sentiments in their own remarks on Tuesday.

Yields rose last week despite the Fed's 25-basis-point rate

cut and its signal for more easing at future meetings. They

appear to have hit a quiet period this week as the market awaits

further data for indications of the economy's direction and the

chances of another rate cut or a rate pause at the Fed's October

meeting.

"Many people are in wait-and-see mode," said Dominique

Toublan, head of US credit strategy at Barclays. "You still have

unknowns, you still have risks."

Markets are pricing in a 92% chance of a 25 bp cut at the

Fed's October meeting, and 8% odds of a pause. U.S. rate futures

have also priced in 44 bps worth of cuts through the end of the

year, according to LSEG data.

The two-year yield, which typically reflects

interest rate expectations, was last down 0.7 bps from Monday's

close at 3.594%. It hit a three-week high of 3.6% in afternoon

trading on Monday.

"Our base case is still a cut in October and December ... but I

don't think it's going to be a done deal," said Gennadiy

Goldberg, head of U.S. rates strategy at TD Securities.

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

measuring the gap between two- and 10-year Treasury notes

, seen as an indicator of economic expectations,

was last at 52.4 bps.

Newly appointed Fed Governor Stephen Miran, the sole

dissenter at last week's meeting in favor of steeper rate cuts,

repeated his sentiments on Monday. In contrast, three Fed

presidents all voiced caution around rate cuts in their own

Monday remarks.

"So far, the hawks have been on parade ... there are still

worries about inflation and potentially central bank

independence," Gennadiy added.

Economic data was sparse on Tuesday, but included S&P Global's

flash U.S. purchasing managers' index releases for September,

which pointed to a slowing picture for services and

manufacturing.

The Treasury Department auctioned $69 billion in two-year

notes on Tuesday with a bid-to-cover ratio of 2.51x. It will

auction a further $70 billion in five-year notes and

$44 billion in seven-year notes later in the week.