(Recasts; adds results of two-year, five-year note auctions,
analyst comment, bullets; updates prices)
* U.S. two-year yield hits highest since early July
* U.S. two-year note auction shows strong results
* U.S. five-year sale shows mixed outcome

By Gertrude Chavez-Dreyfuss
       NEW YORK, Aug 28 (Reuters) - 
    U.S. Treasury yields were little changed to modestly lower
on Monday, pulling back from their highs last week, as investors
awaited key U.S. economic data, led by the non-farm payrolls
report for August on Friday that should help determine the path
of interest rates this year and next.
  
        U.S. two-year yields rose as high as 5.106%,
the highest since July 6, with market participants pricing in
higher interest rates for some time to contain persistently
elevated inflation. The rate move was in line with Federal
Reserve Chair Jerome Powell's hawkish message on Friday.
  
        The two-year yield, which reflects interest
rate expectations, was last flat at 5.048%.
  
        Volume was thin overall with most market participants
out ahead of the Labor Day weekend, and with Monday's holiday in
the UK. 
  
        "Most of the action would come later this week as the
U.S. data starts to come out. You'll probably see a little
volatility," said Jim Barnes, director of fixed income at Bryn
Mawr Trust in Berwyn, Pennsylvania.
  
        "At the end of the day, now that Jackson Hole is behind
us, Jerome Powell's message is consistent in the sense that
economic data will pave the way for future monetary policy," he
added.
  
    Powell, in remarks at the annual Jackson Hole Economic
Policy Symposium on Friday, said the U.S. central bank may need
to raise interest rates further to cool still-too-high
inflation. But he promised the Fed would move carefully, noting
both progress on easing price pressures and risks from the
surprising strength of the U.S. economy.
        Monday's auctions by the U.S. Treasury were mixed, with
the $45 billion two-year note sale garnering more demand than
the $46 billion five-year offering.
  
        The two-year notes fetched a high yield of 
    5.024%
    , the highest in 17 years. That was lower than the expected
rate at the bid deadline, suggesting investors were willing to
accept a lower rate for the note and meant increased demand.
  
        The U.S. five-year note auction was not as strong,
analysts said, picking up a high yield of 
    4.4%
    , matching expectations. The high yield was the highest
since late 2007.
  
        The country's debt managers will next sell $36 billion
in seven-year notes on Tuesday.
  
        The yield curve, as measured by the gap between U.S.
two-year and 10-year yields, reduced its inversion after the
auctions. The curve, which historically predicts recession, was
last at -83.80 bps.
  
    Earlier on Monday, the curve inverted to as much as -88.20
bps, matching the spread hit on Aug. 10. The added inversion
reflected expectations of more interest rate hikes.
    Markets anticipate an 80% chance of the Fed's
standing pat next month, Refinitiv's FedWatch tool showed, but
the probability of a rate hike in November is now seen at
roughly 56%.
    In early afternoon trading, the yield on the benchmark
10-year note was down 3.3 bps at 4.209%. 
        U.S. 30-year yields were also lower, 
    down 
    1.2 
    bps
     at
     
    4.2
    83
    %.
  
        
  
          August 28 Monday 2:13PM New York / 1813 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             5.3425       5.5026    0.018
 Six-month bills               5.35         5.5708    -0.003
 Two-year note                 99-115/256   5.0523    -0.004
 Three-year note               99-22/256    4.7086    -0.017
 Five-year note                98-188/256   4.4132    -0.020
 Seven-year note               98-6/256     4.3331    -0.032
 10-year note                  97-72/256    4.2118    -0.027
 20-year bond                  98-132/256   4.4882    -0.017
 30-year bond                  97-76/256    4.286     -0.009
                                                      
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci
and Leslie Adler)