TREASURIES-US yields slip as market in consolidation mode, in line with UK, Canada

* Investors look to Wednesday's FOMC minutes

* UK, Canadian bond yields spill over to Treasuries

* US hard landing possible the longer the Fed waits to cut rates -fund manager

NEW YORK, Feb 20 (Reuters) - U.S. Treasury yields fell on Tuesday in a holiday-shortened week as investors consolidated positions following last week's gains on the long end of the curve in the wake of stronger-than-expected inflation data.

The decline in UK and Canadian yields also weighed on their U.S. counterpart, analysts said, on a day when there's not much economic data in the United States. Investors are looking to Wednesday's minutes of the January Federal Open Market Committee meeting for more clues on the U.S. interest rate outlook.

UK two-year and 10-year gilt yields fell to 4.551% and 4.01%, respectively in the wake of comments from Bank of England Governor Andrew Bailey on Tuesday saying he was comfortable with investors betting on rate cuts this year.

Canadian yields also weakened, falling to 3.5% as Canada's annual inflation rate slowed significantly more than expected to 2.9% in January and core price measures also eased, bringing forward bets for an early rate cut.

Moves in those markets spilled over to Treasuries, analysts said.

The U.S. rate futures market has priced in an 80% chance of a rate cut at the Federal Reserve's June policy meeting, which would be the first cut since the COVID-19 pandemic, according to LSEG's rate probability app. Two weeks ago, rate futures were betting on easing in March.

For 2024, futures traders are pricing in at least three rate cuts of 25 basis points (bps) each, taking down the fed funds rate to 4.4% by the end of the year. Two weeks ago, traders factored in at least five cuts.

Investors pulled back from their five rate-cut view after a slew of data showing the U.S. economy remained surprisingly stable and inflation stubbornly persistent despite the Fed's aggressive rate hikes.

The three rate declines were in line with the Fed's rate forecast, as outlined in its so-called dot plot.

Bruce Lee, founder and chief executive officer, at Keebeck Wealth Management in Chicago, pointed out that the positive surprises in the U.S. data do not tell the whole story, noting that the longer the Fed waits to lower rates, the

harder the landing

would be for the economy.

"There are real economic issues that are coming in the second and third quarters that we won't be able to avoid," Lee said.

"My instinct is that by the third and fourth quarter, the Fed will be saying that it is behind the curve in cutting rates. That's when the string in the sweater gets pulled and the whole sweater starts unraveling."

In afternoon trade, the benchmark U.S. 10-year yield slipped 2 bps to 4.275%.

On the shorter end of the curve, U.S. two-year yields fell 4.6 bps to 4.605%.

The U.S. yield curve, meanwhile, steepened on Tuesday, with the closely watched spread between 10-year and two-year U.S. Treasury yields at minus 33.5 bps, up from minus 36.7 bps late on Friday.

A typical predictor of recessions, the U.S. yield curve has been inverted since July 2022.

Some analysts attributed part of the steepness of the curve to the Conference Board's Leading Economic Index released on Tuesday. A steeper curve suggests rates have peaked and the next move by the Fed would be a cut.

The index, meant to be a gauge of future economic activity, fell 0.4% in January to 102.7, the lowest since April 2020 when the U.S. economy was in the midst of the pandemic.

That said, the Conference Board pointed out that the leading index "does not signal recession ahead."

(Reporting by Gertrude Chavez-Dreyfuss in New York; Editing by Matthew Lewis and Andrea Ricci)