LONDON, Aug 2 (Reuters) - U.S. Treasuries rallied on Tuesday, pushing 10-year bond yields to four-month lows, on unease that a visit by U.S. House of Representatives Speaker Nancy Pelosi to Taiwan would intensify Sino-U.S. tensions.
Pelosi was expected to arrive in Taipei later in the day, people briefed on the matter said, as several Chinese warplanes flew close to the median line dividing the Taiwan Strait, a source told Reuters.
Longer-dated Treasuries were already well bid since weakening U.S. economic data has markets expecting a slowdown in both U.S. growth and the pace of interest rate hikes.
Safe-haven 10-year Treasuries built on those gains, with yields falling as much as 9 basis points to 2.516%, a four-month low. Yields pulled back slightly as the London session wore on and were last down around 5 bps on the day at around 2.55%.
Their fall briefly pushed the gap over three-month Treasury yields to -1.6 basis points, according to Tradeweb data .
This is the latest part of the U.S. yield curve to move into inverted territory, in a further sign that U.S. recession risks are mounting.
"The U.S. 10-year yield benchmark has reached the psychologically important 2.50% yield area," analysts at Saxo Bank said in a note. "The 2-10 year yield curve inversion is near the extreme for the cycle at –30 basis points."
Across the U.S. curve, two, five, 20 and and 30-year Treasury yields were down over 5 bps each.
Two-year yields were last at 2.85%.
China has repeatedly warned against Pelosi going to Taiwan, which it claims as its own, while the United States said on Monday that it would not be intimidated by Chinese "sabre rattling".
Global stocks slipped and U.S. stock futures were deep in the red, in a bearish sign for the Wall Street open.
"The back end is more a pure safe haven," said ING's Asia economist Rob Carnell, though adding it was both sentiment and the U.S. economic outlook that were supporting the U.S. bond market.
"Not only have you got peak rate hikes, but you've got peak inflation as a theory which has been gathering some pace."
The Federal Reserve has said incoming economic data would be guiding its policy, which investors took to mean that the pace and size of hikes would drop.
Last week, the Fed hiked rates by 75 bps to tame inflation.
U.S. manufacturing activity then dipped to its lowest since June 2020 last month, data released on Monday showed and a slowdown in input price rises offered a hint of a peak in inflation. (Reporting by Tom Westbrook in Singapore and Dhara Ranasinghe in London; Editing by Christina Fincher)