* U.S. 10-year note, 30-year bond yields hit six-week lows
* North Korea says it is considering missile strike on Guam
* U.S. 10-year auction soft, as demand weakens (Adds comments, auction results; updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 9 (Reuters) - U.S. Treasury yields fell on Wednesday, and yields on the benchmark 10-year note hit a six-week low, as escalating tensions between the United States and North Korea spurred demand for safe-haven assets such as government debt.
U.S. 30-year bond yields, which move inversely to prices, also hit a six-week trough, while yields on U.S. 2-year notes matched a low hit four weeks ago.
North Korea on Wednesday said it was considering a missile strike on the U.S. Pacific territory of Guam, which is home to a U.S. military base. That threat followed President Donald Trump’s remarks on Tuesday that any North Korean threat to the United States would be met with “fire and fury.”
Bill Northey, chief investment officer at U.S. Bank Private Client Group in Helena, Montana, said the market’s risk-off move on North Korea tensions has been relatively shallow.
“Ultimately, as you step back from the intra-day, intra-week dynamics, the bigger influences between here and the year-end are the Federal Reserve and the normalization of the balance sheet,” Northey said.
The Fed is expected to announce next month the start of the reduction of its balance sheet, which ballooned with the extended quantitative easing program undertaken to stimulate the U.S. economy after the financial crisis. Chicago Fed President Charles Evans said as much on Wednesday, also saying that the beginning of the balance sheet unwinding in September will likely force the Fed to delay further interest rate hikes until December or even beyond.
In late trading, U.S. 10-year yields were at 2.237. They hit 2.212 percent earlier, the lowest level since June 28 and nearly 7 basis points lower than Tuesday’s close, Reuters data showed.
U.S. 30-year bond yields slid to a six-week trough of 2.790 percent, compared with 2.867 percent late on Tuesday. Yields were last at 2.815 percent.
U.S. 2-year yields touched a low of 1.323 percent, matching a low hit four weeks ago.
The U.S. Treasury’s 10-year sale on Wednesday was lackluster overall, although not surprising given that earlier safe-haven buying wiped out the drop in prices seen in previous sessions.
The 10-year note fetched a high yield of 2.250 percent, above the expected 2.234 percent at the bid deadline. Bids totaled nearly $51.4 billion for a 2.23 bid-to-cover ratio, below last month’s 2.45 and the 2.44 average. The cover ratio was the weakest since November.
Indirect bidding, consisting mostly of foreign central banks, was 57.9 percent, the lowest since December and down from 64.8 percent the previous auction and the 63.8 percent average.
The market is now looking to Thursday’s sale of $15 billion in U.S. 30-year bonds. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama and Leslie Adler)