(Reuters) - The gap between two and 10-year U.S. Treasury yields -- the so-called yield curve -- narrowed on Monday to the flattest since July 2020 as the demand for safe-haven assets extended the rally in longer-dated bonds.
The White House warned on Sunday a Russian assault on Ukraine could begin at any time, sending investors scurrying for bonds and other safe assets.
While yields are up more than 40 basis points this year so far, the talk of war has knocked them off the mid-2019 highs hit recently.
By 1005 GMT, 10-year yields were down around 1.6 bps at 1.9026%, having slid more than 12 basis points on Friday.
However two-year yields which tend to react more to potential monetary policy changes rose two bps to 1.52% , flattening the yield curve to 38.5 bps .
The curve, often seen as a gauge of economic health, has flattened as speculation has grown that the U.S. Federal Reserve could opt for an aggressive, front-loaded rate hike cycle. It now stands some 20 bps flatter than at the end of January.
"We have a very flat yield curve, so the market is saying the Fed could raise rates into a slowdown and that there could be a policy error," said Andrew Lake, head of fixed income at Mirabaud Asset Management.
"So there has been a lot of tightening already priced in, so you should see inflation come down and some impact on consumer spending."
By Sujata Rao and Dhara Ranasinghe)
February 14, 2022
(Corrects headline and first paragraph to say yield curve flattest since July 2020, not April, and net change in paragraph four to down 1.6 bps, not 5 bps)
