U.S. debt, gold, gain favor as investors seek safety

NEW YORK (Reuters) - U.S. Treasury yields fell to their lowest levels in weeks on Wednesday in a flight to safety that also helped lift gold to a three-month peak amid political risks in Europe and worries over U.S. President Donald Trump’s policies.

Political concerns, including a strong showing by far-right candidate Marine Le Pen in France’s presidential race, sent a wave of overseas buyers to Treasuries, which offer a sizeable yield premium over government bonds from countries in Europe.

“Across the developed world the U.S. is still pretty much the high-yielding choice and I would argue the U.S. economy is by far the strongest of those choices,” said Dominic Pappalardo, director of the taxable portfolio management team at McDonnell Investment Management in Oakbrook, Illinois.

“If you’re in much of Europe or Asia where you have rates near zero as well as a tremendous amount of economic uncertainty, getting 2-1/2 percent on your money is really, really attractive.”

Yields on 7-, 10- and 30-year Treasuries US7YT=RRUS10YT=RRUS30YT=RR fell to their lowest levels since mid-January, while 5-year note yields US5YT=RR hit their lowest since Dec. 8.

Spot gold XAU= hit a three-month high of $1,244.67 an ounce before paring gains slightly.

“There’s underlying demand for gold as a hedge against political uncertainties on both sides of the Atlantic,” said Ole Hanson, head of commodity strategy at Saxo Bank.

Even so, any corresponding U.S. risk-off sentiment was little evident on Wall Street, where stocks ended mostly flat. Investors were digesting mixed earnings reports and the Dow Jones Industrial Average slipped as bank stocks weighed.

The Dow .DJI fell 35.95 points, or 0.18 percent, to 20,054.34, the S&P 500 .SPX gained 1.59 points, or 0.07 percent, to 2,294.67 and the Nasdaq Composite .IXIC added 8.24 points, or 0.15 percent, to 5,682.45.

Falling Treasury yields pushed down the dollar, which fell after two days of gains. Investors were also pricing out a March rate hike by the Federal Reserve amid uncertainty about Trump’s protectionism and immigration policies.

The greenback declined 0.03 percent against a basket of major currencies .DXY and the dollar index =USD fell 0.23 percent in late trading.

Oil prices gained slightly as investors covered short positions after a rise in U.S. crude inventories was not as massive as many had feared, while gasoline futures jumped nearly 4 percent after a surprise decline in fuel inventories.

U.S. crude CLc1 settled at $52.34 a barrel, up 17 cents, or 0.33 percent. Brent LCOc1 settled up 0.13 percent, or 7 cents, at $55.12.

In Europe, shares closed slightly higher, with the STOXX 600 pan-European index STOXX rising 0.33 percent. The MSCI all-country world stock index .MIWD00000PUS rose 0.27 percent.

Additional reporting by Devika Krishna Kumar, Chuck Mikolajczak, Dion Rabouin, Gertrude Chavez-Dreyfuss and Marcy Nicholson in New York; Editing by James Dalgleish and Dan Grebler