RPT-TREASURIES-Bonds ease as investors reel in rate cut forecast

(Changes byline, adds analysts' quotes, updates prices

By Chris Reese

NEW YORK, April 21 (Reuters) - U.S. Treasury debt prices mostly eased on Monday as investors pared back expectations the Federal Reserve will continue to cut interest rates aggressively to stimulate a flagging economy.

Shorter-dated securities, which are more susceptible to changes in monetary policy, were hit harder than the longer end of the Treasury curve, and losses overall were limited by some weakness in stocks.

More investors believe rising inflation may influence the Fed to slow the pace of interest-rate cuts. Fed fund futures imply no chance that the Fed will cut rates by 50 basis points at a meeting late this month, whereas a week ago they implied about a 50 percent chance of a 50 basis point cut.

"The Treasury market is confronting the possibility that the expected Fed rate cut on April 30 might be the last cut in the interest-rate easing cycle, and expectations for that cut have been reduced to a quarter (percentage point) cut from a half percent cut," said William Sullivan, chief economist at JVB Financial Group in Boca Raton, Florida.

The expectation of a lesser cut pushed prices down and yields higher, and the 2-year Treasury note US2YT=RR traded 2/32 lower in price for a yield of 2.18 percent from 2.14 percent late on Friday. The benchmark 10-year note US10YT=RR traded 2/32 lower in price for a yield of 3.72 percent from 3.71 percent.

"The market is starting to understand that these inflationary pressures are -- as the Fed has said -- going to restrict how much more easing they can do, and that has pushed prices on the front end of the curve down faster than in the back end," said John Kosar, president of Asbury Research in Chicago.

In addition to the changing rate expectations, analysts said the bond market has an overall bearish tone this week because of scheduled auctions of two-year and five-year Treasury notes on Wednesday and Thursday, respectively.

Five-year Treasury US5YT=RR notes traded 5/32 lower in price for a yield of 2.94 percent from 2.90 percent late on Friday, while 30-year bonds US30YT=RR traded 11/32 higher in price for a yield of 4.48 percent from 4.50 percent.

News that the Fed set a 2.05 percent minimum bid rate on Monday's $50 billion auction of 28-day funds from its Term Auction Facility -- winning bidders to be announced on Tuesday -- had no discernible impact on prices. (Additional reporting by Ellen Freilich; Editing by Neil Stempleman)