TREASURIES-10-year Treasury yields down while 2-year yields rise

By Sinéad Carew

Oct 13 (Reuters) - Longer-dated US Treasury yields were lower on Tuesday as investors monitored Europe's bond markets while 2-year yields reversed course to turn positive on the eve of key US inflation data.

After a US bond market closure on Monday for Columbus Day, benchmark 10-year yields touched their lowest levels since October 2 on Tuesday after last week hitting a 24-year high.

Overseas, euro zone bond yields, particularly on longer-dated bonds, dipped as a selloff in technology stocks in Asia drove some to the safety of government debt.

"One of the reasons why the US market was kind of holding in was because of what's going on in Europe. And we just seem to be following European rates in general," said Tom di Galoma, managing director at Mischler Financial.

On Tuesday, France's 10-year yield fell as low as 4.8034% after finishing Monday at 4.8958% FR10YT=RR. French government bonds have been impacted by investor concerns that political jostling ahead of next year's presidential election may hinder the government's efforts to reduce its high deficit.

"The troubled French debt market has been one of the factors pushing global rates higher in recent months. So the 8-basis-point yield decline for French government paper is giving other markets a chance to breathe," said Lou Brien, market strategist at DRW Trading.

US SEPTEMBER CPI DUE WEDNESDAY

Meanwhile, US investors were waiting for September's consumer price index report on Wednesday for an update on inflation, which has remained sticky as the months-long Middle East war has boosted the price of oil.

Oil prices fell on Tuesday, however, a day after benchmark Brent hit an almost one-month high as traders monitored attacks on Saudi Arabia and prospects for additional diesel supply from Russia.

Two weeks before its October 27-28 meeting, traders were betting that the Federal Reserve will hold rates steady and save its next hike for December. The implied probability of an October hike stood at just 21.6% while bets on a 25-basis-point increase in December stood at 68%, according to CME Group's FedWatch tool.

Fed Bank of Chicago President Austan Goolsbee said there needs to be some progress to get back on the kind of rate-cutting path the central bank had been on, Semafor reported on Tuesday.

Earlier, US Federal Reserve Governor Christopher Waller told a Bloomberg event in Mumbai that the recent rise in US bond yields has been due to stronger economic growth and large-scale investment in artificial intelligence rather than to higher inflation expectations, which remain "well anchored".

The yield on benchmark US 10-year notes US10YT=RR fell 2.29 basis points to 5.221% while the 30-year bond US30YT=RR yield fell 3.19 basis points to 5.5671%.

The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 1.91 basis points to 4.81% after earlier trading as low as 4.7574%.

The gap between yields on 2- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at a positive 40.9 basis points.

(Reporting by Sinead Carew; Editing by Kevin Liffey)

((sinead.carew@thomsonreuters.com))