By David Randall
       NEW YORK, Jan 3 (Reuters) - Benchmark 10-year Treasury
yields briefly climbed above 4% before dipping lower on
Wednesday as investors waded through data to gauge whether the
U.S. economy is set for a soft landing.
    Yields plummeted to six-month lows in December following
signs of cooling inflation and signals from the Federal Reserve
that its most aggressive hiking cycle since the 1980s was over.
Yet over the last two weeks yields have inched upward as traders
re-evaluate their expectations of rate cuts. 
    Markets are pricing in a 25% chance that the Fed holds
benchmark rates in their current range of 5.25% to 5.5% at its
March policy meeting, up from a 21% chance seen yesterday,
according to CME's FedWatch Tool. Futures markets see a 67%
chance of 25 basis point rate cut.
    "This will really be a data-dependent Treasury market as the
Fed looks to maybe walk back some of the dovishness from their
last meeting" said Charlie Ripley, Senior Investment Strategist
for Allianz Investment Management. 
    The yield on 10-year Treasury notes was down 1.7
basis points at 3.927%. It briefly rose as high as 4.1% earlier
in the day. The yield on the 30-year Treasury bond
was down 1.3 basis points to 4.071%. 
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 1.1 basis
points at 4.339%. 
    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 -41.3 basis points, down approximately 5
basis points from its level late Tuesday. 
    U.S. manufacturing contracted further in December,
continuing the longest such stretch since the period from August
2000 to January 2002, the Institute for Supply Management (ISM)
said on Wednesday. 
    Job openings, a measure of labor demand, fell by 62,000 to
8.790 million on the last day of November, the Labor Department
said in its monthly Job Openings and Labor Turnover Survey, or
JOLTS report. Economists polled by Reuters had forecast 8.850
million job openings.
    The labor data "is good news for American workers and the
economy, but it also suggests to me that the Fed is unlikely to
cut rates as aggressively in 2024, as markets currently
indicate, given the risk of re-igniting inflationary pressures,"
said Ron Temple, chief market strategist at Lazard.
    Earlier in the day, Richmond Federal Reserve President
Thomas Barkin said a soft landing is "increasingly conceivable,"
but cautioned that risks remain. "That's why the potential for
additional rate hikes remains on the table," he said, with the
timing and pace of any rate cuts determined by whether inflation
continues to fall.
    
    January 3 Wednesday 1:07PM New York / 1807 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             5.24         5.3988    0.021
 Six-month bills               5.0525       5.2721    0.013
 Two-year note                 99-213/256   4.3388    0.011
 Three-year note               100-194/256  4.0985    -0.001
 Five-year note                99-64/256    3.9169    -0.007
 Seven-year note               98-226/256   3.9343    -0.015
 10-year note                  104-164/256  3.9274    -0.017
 20-year bond                  106-224/256  4.2343    -0.014
 30-year bond                  111-176/256  4.07      -0.014
 

 (Reporting by David Randall; Editing by Barbara Lewis, Emelia
Sithole-Matarise and Nick Zieminski)