NEW YORK, April 19 (Reuters) - U.S. Treasury yields dipped from near 5-month highs Friday as investors moved toward safe haven assets in the wake of a presumed Israeli attack on Iran.
Tehran played down the incident and indicated it had no plans for retaliation - a response that appeared gauged towards averting region-wide war.
Easing concerns over a broad Middle East conflict will likely continue to put pressure on Treasuries, which have sold off for much of the week on rising concerns that persistent inflation will prevent the Federal Reserve from cutting interest rates this year.
A number of Fed officials have said this week that they do not feel the urgency to cut rates given the strength of the US economy and labor market. Minneapolis Fed President Neel Kashkari told Fox News Channel late Thursday that he also wants to be "patient," with the first rate cut "potentially" not appropriate until next year.
Markets are now pricing in a total of 39 basis points in rate cuts by the end of the year, down from 48 at the start of the week and sharply lower than the more than 160 basis points in cuts expected at the start of January.
Continued conflict in the Middle East is likely to continue to push up inflation expectations, driving Treasury yields higher, said Thierry Wizman, global FX & rates strategist at Macquarie.
"A scenario of ongoing shadow wars, border wars, and limited wars may keep inflation expectations high and make the Fed's job harder," but not cause a critical mass of panic needed to drive a flight to safety that bond bulls would hope for," he said.
The yield on 10-year Treasury notes was down 3.7 basis points to 4.610%. The yield on the 30-year Treasury bond was down 4.3 basis points to 4.702%.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 0.8 basis points at 4.982%.
(Reporting by David Randall; Editing by Angus MacSwan)
