August 22, 2018 / 2:10 PM / 3 months ago

TREASURIES-Yields at six-week lows on U.S. political uncertainty

* U.S. political uncertainty prompts safety buying

* Trade tensions, Fed meeting minutes in focus

By Karen Brettell

NEW YORK, Aug 22 (Reuters) - Benchmark 10-year Treasury yields fell to six week lows, and the yield curve was the flattest since 2007 on safe-haven buying on Wednesday as investors weighed how a guilty plea by Donald Trump’s former personal lawyer and the criminal conviction of his former campaign manager will affect his presidency.

Former Trump lawyer Michael Cohen, who pleaded guilty to a range of charges on Tuesday, testified that Trump had directed him to commit a crime before the 2016 presidential election by arranging payments to silence two women who said they had affairs with the New York businessman.

On the same day, a federal jury convicted former campaign manager Paul Manafort on tax and fraud charges resulting from U.S. Special Counsel Robert Mueller’s investigation.

Treasuries were further bid up on concerns about trade tensions with U.S. and Chinese officials set to resume contentious trade talks on Wednesday. Investors were also focused on minutes from the Federal Reserve’s August meeting due later on Wednesday.

“Beyond the political uncertainty associated with what’s going on in Washington, there are broader macroeconomic concerns resulting from on-again, off-again trade tensions and, of course, where the Fed stands on this,” said Ian Lyngen, head of U.S. interest rates strategy at BMO Capital Markets in New York.

Benchmark 10-year notes gained 9/32 in price to yield 2.812 percent, down from 2.844 percent on Tuesday and the lowest since July 6.

The yield curve between 2-year and 10-year notes flattened to 22 basis points, the flattest since 2007.

Investors will evaluate the Fed minutes for any new indications on whether the U.S. central bank, which has already raised rates twice this year, will hike rates two more times by year-end.

“The first debate is how close are we to neutral, and that will feed into the market’s contemplation of if and when there will be a pause (of rate hikes),” said Lyngen.

Futures traders are pricing in a 94 percent chance of a rate hike in September, and a 61 percent chance of a further increase in December, according to the CME Group’s FedWatch Tool.

Investors will also be looking for any discussion around the flattening of the yield curve, and whether an inversion of the 2-year, 10-year curve would lead the central bank to stop rate hikes.

A yield inversion is typically seen as a precursor to a U.S. recession.

Fed Chairman Jerome Powell is also to speak on Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming. (Reporting by Karen Brettell, editing by Jonathan Oatis) )

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