August 11, 2014 / 7:16 PM / in 3 years

TREASURIES-U.S. bond yields steady on Middle East, Ukraine jitters

* Benchmark yields hover above 14-month lows on safe-haven bids

* Worries persist about Gaza, Iraq and Ukraine

* Fed’s Fischer rings caution on U.S. economic outlook

* Investors prepare for $67 bln August U.S. refunding (Updates market action, adds fresh quote)

By Richard Leong

NEW YORK, Aug 11 (Reuters) - U.S. government debt yields were little changed on Monday, hovering near recent lows as traders clung to their safe-haven bond holdings on anxiety about tensions in the Middle East and Ukraine.

Benchmark 10-year yields were not far from last week’s 14-month lows on bets that the possible spread of conflicts in Iraq, eastern Ukraine and the Gaza Strip would hurt the global economy.

Russian President Vladimir Putin said on Monday that his nation will send an aid convoy to eastern Ukraine, a move the West warned was a pretext to an invasion. Meanwhile, Iraqi Prime Minister Nuri al-Maliki, whom Washington and Tehran blame for causing the Sunni minority revolt in Iraq, refused to step down after his replacement was named.

“Bond investors are not giving up yet on their safety bids. They are keeping an eye on what’s happening overseas,” said James Barnes, fixed income portfolio manager at National Penn Investors Trust Co. in Wyomissing, Pennsylvania.

Benchmark yields were held down partly on comments by Fed Vice Chairman Stanley Fischer, who said earlier on Monday that the United States’ subpar economic recovery since the financial crisis has stemmed from a variety of factors, including declining productivity and sluggish global demand.

Traders perceived his speech at a conference in Sweden as implying that the U.S. central bank would not increase interest rates until the second half of 2015 at the earliest.

On below-average volume, the yield on U.S. 10-year Treasury notes was last at 2.420 percent, up 0.5 basis point on the day and paring an earlier rise of 2.5 basis points. On Friday, it fell to 2.349 percent, a level not seen since June 2013.

Wall Street share prices rose for a second day, with the Standard & Poor’s 500 index last up 0.28 percent.

Treasury yields rose initially on a 72-hour truce between Israelis and Palestinians that afforded both sides time for talks to end their month-old war in Gaza. U.S. airstrikes in Iraq aimed at curbing the advance of Islamic State militants who have taken over large swaths of that country also briefly pared safe-haven bids for Treasuries.

On the supply front, the U.S. Treasury Department will begin its $67 billion refunding later this week, which is estimated to raise $9.3 billion in cash for the federal government. The Treasury will sell $27 billion of three-year debt on Tuesday.

In the “when-issued” market, the upcoming three-year note issue due August 2017 was quoted to sell at a yield of 0.9190 percent, which would be the lowest yield in four months.

The quarterly refunding “should be okay, but if we make another run lower in yields, it could be sloppy,” said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York. (Reporting by Richard Leong; Editing by Jonathan Oatis and Paul Simao)

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