(Recasts with auction news; updates yields; adds analyst quotes)
By Kate Duguid
NEW YORK, Jan 29 (Reuters) - The price of seven-year Treasury notes jumped on Tuesday after strong demand at auction for $32 billion of new issues, with yields down across maturities ahead of the Federal Reserve's policy statement on Wednesday.
The U.S. Treasury Department auctioned seven-year government notes at a yield of 2.625 percent, the lowest at an auction of this debt maturity since January 2018, Treasury data showed. Yields move inversely to price.
Direct bidders who buy issues from Treasury without a Wall Street intermediary - a group that includes bond dealers, large fund managers and select foreign central bank like the People's Bank of China - took 24.9 percent of the auction. That is the third highest percentage on record.
"The interesting thing was the strength of the direct bid," said Lou Brien, market strategist at DRW Trading, because "China is a part of the indirect bidders."
Although it is not clear which bidders participated in Tuesday's auction, the assumption of Chinese demand "may be part of the bid in Treasuries."
The seven-year yield was last down 3.8 basis points at 2.61 percent, the largest drop in bonds yields from the two-year to the 30-year. Good results from the $162 billion in new debt offered Monday, which also saw strong demand from direct bidders, pushed up expectations for Tuesday afternoon's auctions.
The flood of supply comes ahead of a policy statement from Federal Reserve Chair Jerome Powell on Wednesday. While the central bank is not expected to adjust its policy, the language in the statement will be scrutinized carefully for signs of Powell's willingness to pause the central bank's gradual interest rate increases.
A pause in rate-hiking became a talking point after U.S. economic data came in softer than expected in December and investors were whipped around by financial markets. Strong demand for U.S. debt indicates the market believes that rates will not be raised, at least in the short term.
Yields were also dragged lower following data which showed an index of U.S. consumer confidence was at its lowest since July 2017.
Later this week, investors will be watching the release of several important economic data reports, some of which had been delayed by the record five-week partial U.S. government shutdown that ended this weekend.
Employment data for December will be published on Friday and is expected to show the shutdown's impact.
The benchmark 10-year yield was down 3.2 basis points, last at 2.71 percent. The two-year yield, which reflects market expectations of rate hikes was down 2 basis points, last at 2.57 percent.
Reporting by Kate Duguid; Editing by Bernadette Baum and Lisa Shumaker