TREASURIES-Yields fall as weak stock markets boost safe haven demand

By Karen Brettell

NEW YORK, March 13 (Reuters) - U.S. Treasury yields fell on Thursday as tumbling stocks boosted demand for safe haven U.S. government debt with an escalating trade war between the United States and trading partners threatening to dent growth and boost inflation.

Uncertainty over the impact of what tariffs will be put in place and for how long has squeezed risk sentiment while questions also remain over what their ultimate impact on the economy will be.

There is “concern about the tariffs in addition to the uncertainty and the erratic implementation of the tariff policies,” said Lou Brien, strategist at DRW Trading.

U.S. President Donald Trump said on Thursday that he would put a 200% tariff on all wines and other alcoholic products coming out of the European Union if the bloc did not remove its tariff on whiskey.

Trump's 25% duties on all U.S. steel and aluminum imports took effect on Wednesday. Canada has requested WTO dispute consultations with the U.S. over the import duties.

Bonds largely shrugged off data showing that U.S. producer prices were unexpectedly unchanged in February.

Traders view the report as backward-looking as it covers the period before tariffs were put in place. Some underlying components in the inflation report were also less benign than the headline suggests.

"The cooler-than-expected February PPI included some relatively hot increases in the components that feed into the Fed’s preferred PCE deflator," Will Compernolle, macro strategist at FHN Financial, said in a report.

The Federal Reserve's favorite inflation indicator, personal consumption expenditures, is due on March 28.

The yield on benchmark U.S. 10-year notes US10YT=RR was last down 3.4 basis points on the day at 4.282%. It earlier reached 4.353%, the highest since February 25.

The 2-year note US2YT=RR yield fell 4.2 basis points to 3.953%.

The yield curve between two-year and 10-year notes US2US10=TWEB steepened by around one basis point to 33 basis points.

Traders are also watching discussions over a possible Russia-Ukraine peace deal.

President Vladimir Putin said on Thursday that Russia supported a U.S. proposal for a ceasefire in Ukraine in principle, but that any truce would have to address the root causes of the conflict and that many crucial details needed to be sorted out.

The Treasury saw soft demand for a $22 billion auction of 30-year bonds, the final sale of $119 billion in coupon-bearing debt this week.

The bonds sold at a high yield of 4.623%, around one basis point above where they traded ahead of the auction. Demand was 2.37 times the amount of debt on offer. USAUCTION28

The U.S. government saw fair demand for a $39 billion sale of 10-year notes on Wednesday and a $58 billion auction of three-year notes on Tuesday.

A possible U.S. government shutdown is also in focus as Congress wrangles over a stopgap funding bill to avoid a partial government shutdown.