* NY Fed survey sees lower inflation ahead
* Atlanta Fed's Bostic says his bias is for tighter rates
* U.S. rates futures price in 64% chance of March rate cut
* Investors look to Treasury auctions, U.S. inflation data
NEW YORK, Jan 8 (Reuters) - U.S. Treasury yields fell on Monday, weighed down in part by a New York Federal Reserve report saying consumers expect lower inflation as well as weaker income and spending over the next several years.
Volume was thinner than usual with Japan closed overnight for a holiday and a light economic calendar.
In its latest Survey of Consumer Expectations, the New York Fed said inflation one year from now is expected to be at 3%,
the lowest reading since January 2021
, versus a 3.4% forecast in November. Poll respondents also saw inflation three years from now at 2.6%, from 3% in November.
Respondents in the poll also forecast slower gains in household earnings and spending, with the latter moving to 5% in December, its weakest since September 2021.
"The consumer obviously drives the economy and if consumers start pulling back, that's not what the Fed wants to see," said Ellis Phifer, managing director, fixed income capital markets, at Raymond James in Memphis, Tennessee.
"It's kind of they do want to see it, but they don't want to see it. They want to see it because they want to slow things down but the Fed does not want the economy to end in recession."
The release of the NY Fed survey comes ahead of U.S. consumer and producer inflation reports due out this week, with analysts expecting the rise in prices to slow in December.
Core CPI, or underlying inflation, is expected to remain unchanged at 0.3%, while the year-on-year number is seen rising at a lower-than-expected pace of 3.8% from a month earlier, according to a Reuters poll.
Sharp price cuts by top oil exporter Saudi Arabia and a rise in OPEC output should also pare back inflation expectations and push yields lower, analysts said.
In afternoon trading, the benchmark 10-year yield was down three basis points (bps) at 4.011%. It hit a three-week high on Friday of 4.1% following a stronger-than-expected employment report which showed the U.S. economy created 216,000 jobs in December.
Investors are also looking to this week's auction of U.S. three-year, 10-year notes, and 30-year Treasuries, as well as heavy corporate debt issuance. Action Economics said there is roughly $30 billion on tap from 14 companies, adding to last week's rush to issue.
BMO Capital Markets in a research note wrote that supply will play an "outsized role" in dictating price action.
In other maturities, U.S. 30-year bond yields slipped 2.9 bps to 4.17%.
On the shorter end of the curve, U.S. two-year yields were down 2.9 bps to 4.013%.
A closely-watched metric of the U.S. yield curve, showing the gap in yields between two- and 10-year notes US2US10=TWEB narrowed its inversion to minus 34.5 bps. An inverted yield curve typically foreshadows recession.
This part of the curve, which has been inverted since July 2022, has been on a steepening trend over the last few months. Analysts said this is typical when investors expect the Fed to end its tightening cycle soon and commence rate cuts after a few policy meetings.
On Monday, the U.S. rate futures market priced in a 64% chance of a rate cut in March, according to LSEG's rate probability app. For 2024, traders are betting on about five rate cuts of 25 bps each, putting the year-end fed funds rate at 4%.
However, Atlanta Fed President Raphael Bostic's comments on Monday pushed back against a March rate cut. He said his "natural bias is to be tighter" given that inflation remains above the Fed's 2% target.
Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania, said the rate futures outlook appeared too aggressive.
"It's going to take a while for the Fed to get started on rate cuts with economic data as strong as it is," Barnes said. "Once they do the first cut -- that's probably mid-year -- and depending on how economic data plays out, we think more in that three rate-cut area." (Reporting by Gertrude Chavez-Dreyfuss; Editing by Sharon Singleton and Deepa Babington)
