TREASURIES-Yields drop on safety bid as Ukraine strikes Russia

By Karen Brettell

NEW YORK, Nov 19 (Reuters) - U.S. Treasury yields fell on Tuesday as investors bought safe-haven U.S. government bonds on concerns about escalating geopolitical tensions after Ukraine sent U.S. missiles into Russian territory for the first time.

Ukraine used U.S. ATACMS missiles to strike Russia, Moscow said, in an attack regarded by Russia as a major escalation on the war's 1,000th day.

"It seems to be all flight to quality," said Tom di Galoma, head of fixed income trading at Curvature Securities. "There is a 'risk off' bid with the Ukraine, Russia tension."

Benchmark 10-year note yields were last down 4.1 basis points at 4.373%. Two-year yields fell 2.9 basis points to 4.255%.

The yield curve between two-year and 10-year notes flattened by around a basis point to 12 basis points.

Yields have risen in the past two months on stronger than previously anticipated U.S. economic data and more recently on expectations that Republicans will enact more growth-friendly and inflationary policies after winning control of Congress and the presidency.

Donald Trump is expected to clamp down on illegal immigration and enact new tariffs after winning the Nov. 5 presidential election, but there remains a lot of uncertainty over how these policies may be implemented.

Traders are also focused on Trump's pick for Treasury Secretary for further clues on likely policies.

Still-strong economic data has also raised doubts on whether the Federal Reserve could pause its rate-cutting cycle, following 75 basis points of reductions since September.

Fed Chair Jerome Powell said on Thursday that ongoing economic growth, a solid job market, and inflation that remains above its 2% target mean the Fed does not need to rush to lower interest rates.

Traders are pricing in 62% odds that the U.S. central bank will cut rates by 25 basis points at its Dec. 17-18 meeting, and a 38% chance of a pause, according to the CME Group's FedWatch Tool.

Data on Tuesday showed that U.S. single-family homebuilding tumbled in October as Hurricanes Helene and Milton depressed activity in the South.

The Treasury Department will sell $16 billion in 20-year bonds on Wednesday and $17 billion in 10-year Treasury Inflation Protected Securities on Thursday. (Reporting By Karen Brettell; Editing by Andrea Ricci)