NEW YORK - U.S. Treasury yields vacillated as trading for 2025 commenced on Thursday, with investors digesting December's bond sell-off and preparing for less-determined monetary easing and any inflationary fallout from the next administration's economic program.

After slipping early, yields ticked higher around the time that Wall Street reversed early stock gains. But activity was subdued a day after New Year's Day, with some players stretching the holiday break to a second weekend.

A drop reported in the number of weekly applications for unemployment insurance to 211,000 from an upwardly adjusted 220,000 last week, while showing continued resilience in the job market, minimally lifted yields. Likewise an unchanged reading on November construction spending.

"It's all very contained," said Jan Nevruzi, interest rate strategist at TD Securities, New York. "I don't think there's going to be too much until you start seeing some more of the issuances hitting the market, both in corporate and in Treasuries."

Next week brings auctions of $58 billion in three-year notes on Tuesday, $39 billion in 10-year notes on Wednesday and $22 billion of 30-year bonds to be sold on Thursday.

The first big economic indicator release of the year comes next Friday with the December employment report, a week later than usual after the holiday period.

With the inauguration of President-elect Donald Trump less than three weeks away, his promise to raise import tariffs has many economists predicting that consumers will balk at paying more for goods and reduce demand, while there is a possibility his proposed tax cuts will worsen the fiscal deficit.

The yield on benchmark U.S. 10-year notes was off one basis points from late Tuesday at 4.567%. The 30-year bond yield rose 0.6 basis point to 4.7894%. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 0.6 basis point to 4.246%, having touched its lowest level since Dec. 13.

A selloff in government debt as the market repriced expectations for Federal Reserve policy in 2025 hoisted the 10-year yield above 4.64% on Dec. 26, its highest level since early May. The two-year yield is not far from its November-December levels above 4.36%, which were last seen in July's rate decline as markets were pricing in the start of Fed easing.

The Fed cut the fed funds target rate by 50 bp in September from the range of 5.25%-5.50% where it had stood since July 2023 after a series of aggressive hikes to curb inflation. The central bank then reduced rates another quarter basis point at its November and December meetings.

In economic projections released last month when it lowered the target to 4.25%-4.50% the Fed reduced the number of projected rate cuts in the coming year. The policymakers now expect two quarter-point interest rate cuts by the end of 2025, down from four in September, and set up the likelihood of a pause in January.

The resilience of the U.S. economy and slow progress bringing inflation down in the last stretch to the Fed's 2% target has been highlighted by policymakers from Chair Jerome Powell down. Powell has also said it's too soon to say how Trump's proposed economic policies will affect the economy or Fed policy.

According to the fed funds futures term structure, traders see about an 89% chance the Fed will sit tight in January, with odds for a cut at the March meeting a bit more than 50-50. About 50 bp of reductions are built in by year end.

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 a positive 31.9 basis points, flatter than +32.7 bp late Tuesday, when it reached its steepest since May 2022.

"Although yields have fallen a few basis points from some peaks late last week, lingering concerns about future increases in issuance for coupon Treasuries and the sobering possibility that Fed easing may be close to finished this cycle are dominating market sentiment to start 2025," said Will Campernolle, macro strategist at FHN Financial in a client note.

The five-year TIPS breakeven inflation rate was around 2.41%. This suggests that investors think annual inflation will average above the Fed's 2% target for the next five years.

(Reporting by Alden Bentley; Editing by Elaine Hardcastle and Andrea Ricci)