TREASURIES-US yields fall after Waller comments, data

(Updated at 2:35 p.m. ET/ 1935 GMT)

By Chuck Mikolajczak

NEW YORK, Nov 28 (Reuters) - U.S. Treasury yields were mostly lower on Tuesday, with the benchmark 10-year note at two-month lows after comments from a Federal Reserve official signaled a cut in interest rates from the central bank may be on the horizon.

Yields moved lower, especially the two-year U.S. Treasury, after Fed Governor Christopher Waller, seen as a hawkish member of the central bank, said there are good economic arguments you could lower the policy rate if inflation continues falling for several more months.

The two-year, which typically moves in step with interest rate expectations, was down 9 basis points to 4.765% on the session.

In addition, Chicago Federal Reserve Bank President Austan Goolsbee said he believes that overall inflation is coming down at a pace not seen since the 1950s.

Recent comments from some other Fed officials have not ruled out the possibility more rate hikes could be needed should a change in economic data require it and on Tuesday, Fed Governor Michelle Bowman said she expects the Fed will likely need to raise borrowing costs further in order to bring inflation back down to its 2% target over a reasonable period.

Softening economic data, including a reading on inflation two weeks ago, has fueled expectations the Fed will hold rates at their current level, while pricing in a slightly greater than 60% chance of a rate cut of at least 25 basis points in May, according to CME's FedWatch Tool. Expectations were slightly more than 50% before Waller's comments.

"Yields have been coming down. The overall trend in rates have been lower for a number of weeks and that's because investors are less concerned the Fed will raise rates and they're less concerned inflation will creep higher," said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.

"Waller's comments had some effect today."

Yields briefly pared declines after an auction of $39 billion in seven-year notes that was seen as poor by analysts, with demand at 2.44 times the notes on sale, the lowest since April.

The yield on the 10-year Treasury note fell 4 basis points to 4.348% after falling to 4.332%, its lowest since Sept 20.

On the economic front, the S&P CoreLogic Case-Shiller national home price index posted a 3.9% increase in September on an annual basis, below the 4.0% estimate but stronger than the 2.5% rise in August, suggesting the housing market may be picking up steam.

A separate report from the Conference Board showed its consumer confidence index climbed to 101.0 in November, below the expected 102.0 but above the downwardly revised 99.1 in the prior month, rising for the first time after three straight monthly declines.

Despite a climb last week, the 10-year yield is on track for its biggest monthly decline since August 2019, as investors largely believe the Federal Reserve is done with its interest rate hike cycle and attempts to price in when the central bank will instead cut rates.

Fed Chair Jerome Powell is scheduled to speak on Friday, while investors will also get another look at inflation data in the form of the personal consumption expenditures (PCE) price index.

The yield on the 30-year bond was unchanged at 4.536%.

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 negative 41.5 basis points from a negative 50.2 on Monday.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last 2.191% after closing at 2.161% on Monday.

The 10-year TIPS breakeven rate was last at 2.246%, indicating the market sees inflation averaging about 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak, additional reporting by Sinéad Carew Editing by Marguerita Choy and Nick Zieminski)