TREASURIES-Ten-year Treasury yields end 2023 slightly higher, as traders look ahead to rate cuts

(Updates paragraph 4 to reflect rebound in yields following recent weak economic data points) By Matt Tracy Dec 29 (Reuters) - Benchmark U.S. 10-year Treasury yields ended 2023 higher year-over-year as investors digested weak economic data and anticipate an economic downturn in the New Year. Trading in the last week of the year - typically quiet as many traders take holiday - kicked off on Tuesday with a decline in yields, following economic data in the previous week that pointed to weakening inflation. On Wednesday, the two-year Treasury's yield hit its lowest point since May 17, at 4.243%, while the 10-year briefly touched 3.820%, its lowest level since July 19. Yields have since climbed back up, as datapoints this week pointed to weakness in the U.S. economy, explaining that it bolsters expectations that the Federal Reserve could pivot to an easier policy early in the new year. The yield on 10-year Treasury notes was up 2.9 basis points to 3.879%, 4.5 basis points higher than the same time last year. It is a resounding 69.2 bps lower than the end of the third quarter. The two-year's yield, which typically moves in step with interest rate expectations, was last down 3.1 bps at 4.249%. That is 11.8 bps lower than the same time last year, and 79.7 bps lower than the end of the third quarter. The yield on the 30-year Treasury bond was up 4.3 bps to 4.031%. Both the two-year and 10-year's yields briefly dipped following data on Friday that showed the Chicago Purchasing Managers' Index data slumped in December. 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 -38.6 basis points. The bear flattening of the yield curve indicates recessionary expectations among U.S. rates investors. But yield movements in the last week of the year should be taken with a grain of salt, according to Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. "The market seems to be drifting into a bear flattening move, with little actual activity behind the move as many investors are still out during the holiday season," Goldberg said. Friday marks the final day of trading in 2023, with trading ended at 2 p.m. ET. Markets are pricing in interest rate cuts by the U.S. Federal Reserve as early as March next year. Traders see as much as 152 basis points in rate cuts by the end of 2024. FEDWATCH Strong demand for several Treasury auctions this week served as a counterweight to the latest upward yield move. These included auctions for the two-year, five-year and seven-year. December 29 Friday 2:11PM New York / 1911 GMT Price Current Net Yield % Change (bps) Three-month bills 5.225 5.3792 -0.016 Six-month bills 5.0725 5.2889 0.013 Two-year note 100 4.2499 -0.031 Three-year note 101-2/256 4.0088 -0.024 Five-year note 99-144/256 3.8471 0.000 Seven-year note 99-48/256 3.8837 0.022 10-year note 105-12/256 3.8791 0.029 30-year bond 112-104/256 4.0316 0.043 (Reporting by Matt Tracy; editing by Barbara Lewis, Leslie Adler and Diane Craft)