TREASURIES-US yields nudge upward following so-so 30-year auction

* 30-year auction points to middling demand * Market signals less meaningful in absence of government data, Compernolle says * Fed Governor Barr warns against aggressive policy changes, cites inflation risk (Updates with 30-year auction, latest yields; adds Barr speech, fresh comment in paragraphs 1, 3-13) WASHINGTON, Oct 9 (Reuters) – U.S. Treasury yields were higher on Thursday afternoon after an auction of long-dated bonds pointed to middling demand amid a continuing shutdown of the federal government that has blocked the release of official economic indicators. The two-year and benchmark 10-year Treasuries have moved in a narrow band since lawmakers in Washington failed to agree on spending legislation ahead of a September 30 deadline. So far, there are few indications an end to the impasse is near. Yields on the 30-year bond rose slightly following a U.S. Treasury sale of $22 billion but Lou Brien of DRW Trading said in a client note that there were still signs of demand, given the bid-to-cover ratio and share for primary dealers. Will Compernolle, macro strategist at FHN Financial, said market signals were likely to be less meaningful so long as investors lacked developments to push them in any particular direction, such as cues from government economic data. "If the jobs report comes out and gives a clear signal, then any of the moves we've seen this week are going to quickly reverse," he said, adding that yields and auctions were less reliable indicators of investor demand during a "weird week." "If the Treasuries are drifting aimlessly this week, then these auctions are taking the pulse at weird time." The University of Michigan on Friday is due to release its monthly report on consumer sentiment, an indicator likely to receive unusual scrutiny in the absence of official data. Meanwhile Federal Reserve Governor Michael Barr said in a speech on Thursday that the central bank should be "cautious" about cutting benchmark interest rates due to the risk of persistent inflation. The central bank's policymaking committee has nevertheless signaled it is likely to cut rates when it meets later this month. The yield on the benchmark U.S. 10-year Treasury note was last up 1.7 basis points to 4.148%. The yield on the 30-year bond rose 0.8 basis points to 4.732%. 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 54.7 basis points. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 1.3 basis points to 3.597%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.423% after closing at 2.428% on October 8. The 10-year TIPS breakeven rate was last at 2.355%, indicating the market sees inflation averaging about 2.4% a year for the next decade. (Reporting by Douglas Gillison in Washington; Editing by Andrea Ricci and Nick Zieminski)

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