(Updates to early afternoon U.S. trading, changes headline)
NEW YORK, Jan 29 (Reuters) - U.S. Treasury yields dipped Monday, with volume less than average, at the start of a busy week of economic data and a Federal Reserve decision that will help shape the path of interest rates this year.
Investors are bracing for the Federal Open Market Committee (FOMC) rate decision and statement on Wednesday and U.S. nonfarm payrolls data on Friday. There are no fireworks expected in terms of the rate decision, with the Federal Reserve widely seen as holding interest rates steady, but some investors believe the U.S. central bank could drop its hiking bias.
In early afternoon trading, the benchmark 10-year yield was down 6.3 basis points to 4.097%. The yield on the 30-year Treasury bond was down 4.9 basis points to 4.341%.
Analysts said overnight volume in U.S. Treasuries was about 70% of the average.
"We're stuck in a range right now of roughly 3.90% at the bottom and about 4.20% at the top here in the 10-year and this is much ado about nothing," said Stan Shipley, managing director and fixed income strategist, at Evercore ISI in New York.
"It's not likely that the 10-year is going to move much in front of the FOMC on Wednesday and payrolls on Friday given all the uncertainty."
Federal funds futures on Monday priced in five rate cuts of 25 bps each for 2024, according to LSEG's rate probability app. The market is also fully pricing in the first rate cut to occur at the May meeting, with a 91% probability.
At the March meeting, futures see a less than 50% chance of a Fed rate cut, down from as much as 80% three weeks ago.
On payrolls, Wall Street economists expect the U.S. economy to have created 180,000 jobs in January, according to a Reuters poll, down from 216,000 in December. The unemployment rate is expected to have inched up to 3.8%.
The spotlight will also be on the U.S. Treasury's borrowing forecasts for the first and second quarters to be released later on Monday ahead of the February refunding announcement, which will provide details on auction sizes.
Monday's borrowing forecasts could be market-moving, analysts said, if the numbers are higher or lower than expectations. The announcement on July 31 of $1.007 trillion in funding needs for the third quarter spooked the bond market.
"There will be a fair amount of focus on the supply of Treasury issuance but we don't think we're at the point of a liquidity concern," said Bryce Doty, senior portfolio manager at Sit Invest.
The Treasury will release its quarterly borrowing requirements on Monday at 3 p.m. ET (2000 GMT) and its refunding news on Wednesday at 8:30 a.m. ET (1330 GMT).
In other corners of the bond market, the closely watched yield gap between two- and 10-year U.S. Treasury notes flattened, widening its inversion to minus 21.60 basis points .
Analysts described the yield curve move as a "bull flattener," in which the decline in long-term rates are steeper than those on short-dated ones. This is a scenario that normally precedes a cut in interest rates by the Federal Reserve.
The bull flattening on Monday suggests a flight-to-safety trade, analysts said, and comes after the killing of three U.S. troops and wounding of dozens more on Sunday in Jordan by Iran-backed militants.
In other maturities, the U.S. two-year yield, which reflects interest rate expectations, was down 4.3 basis points at 4.322% (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by David Randall; Editing by Andrea Ricci and Cynthia Osterman)
