US yields edge lower despite Iran worries, broader sell-off

WASHINGTON, Aug 18 (Reuters) - U.S. yields ‌backed off earlier ​highs ​on Tuesday after two straight upward trading sessions, switching directions amid a global bond selloff that saw long-term borrowing costs in major economies ‌edge toward their highest levels in decades.

The change in sentiment came amid ⁠a week light on economic data or other catalysts to set a firm direction in thin ‌summer trading, leaving markets to ‌parse the latest developments in the U.S.-Iran conflict, analysts said.

"Economic data is light and malaise is high and between those two a gentle breeze could move things," ​said Guy LeBas, chief fixed income strategist at Janney.

U.S. President Donald Trump said Tuesday no talks were taking place with Iran and none were scheduled, ⁠while insisting that the Strait of Hormuz was open, contradicting an Iranian assertion that the waterway remained closed to ​shipping.

Meanwhile, the Federal Reserve reported that July growth in U.S. industrial production had cooled by a tenth of a percentage point to ​0.2%, undershooting economists' expectations in part due to ‌a decline in production of consumer goods.

Markets on Wednesday will turn to the Federal Reserve's release of minutes from the most ⁠recent meeting of its monetary policy-setting Federal Open Market Committee for clues as to policymakers' views on the path of interest rates. The U.S. is also due to auction 20-year bonds.

The ⁠yield on the benchmark U.S. 10-year Treasury note was last down 1.6 basis points to 4.708%. The yield on ​the 30-year bond fell 2.6 basis points to 5.284%.

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 52.9 basis points.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 0.5 basis ‌points to 4.177%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.277% after closing ⁠at 2.253% on August 17.

The 10-year TIPS breakeven ‌rate was last at 2.3%, indicating ​the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Douglas Gillison in Washington; Editing by Sharon Singleton and ‌Aurora Ellis)

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