TREASURIES-Long yields set for biggest rise in a month after Trump team attack on Powell

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Trump team threatens Powell over Fed building project

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Yield curve steepening as 30-year yields rise, 2-year yields fall

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Dollar down as investors swerve US assets

By Amanda Cooper

LONDON, Jan 12 (Reuters) - U.S. 30-year Treasury yields rose sharply on Monday in European trading, after President Donald Trump's team threatened to indict Federal Reserve Chair Jerome Powell over a building renovation project, reigniting investor concern about the central bank's independence and ?the reliability of U.S. assets.

Yields on the 30-year bond rose 4.4 basis points to 4.86%, set for their largest rise in a month, and in ?sharp contrast to the 1.6-bp drop in two-year yields, a dynamic known as yield curve steepening. Reflecting some of ?the nervousness towards U.S. assets, the dollar fell sharply against the safe-haven Swiss franc, while ?gold rallied towards $4,600 an ounce.

FED ?RECEIVES SUBPOENAS

Trump officials' latest salvo was revealed late Sunday by Powell, who said the Fed had received subpoenas from the Justice Department last week pertaining ?to remarks he made to Congress last summer over cost ?overruns for a $2.5 billion building renovation project at the Fed's headquarters complex in Washington.

"No one-certainly not the chair of the Federal Reserve-is above the law," Powell said in a statement on Sunday. "But ?this unprecedented action should be seen in the broader ?context of the administration's ?threats and ongoing pressure" for lower interest rates and more broadly for greater say over the Fed, he said.

Last week, 30-year bonds staged their strongest weekly rally since early October, with a decline in ?yields of 4.5 basis points. They are still, however, not far off their highest since last August.

"Markets are reacting as you would expect to the latest round of Fed independence fears," IG strategist David Scutt said.

SUPREME COURT RULING ON TARIFFS DUE

Employment data last week showed the U.S. economy created fewer jobs than expected in December, but not so few as to warrant any change in expectations for just two rate cuts from the Fed this year. Trump ?has made ?no secret of the fact he wants the central bank to deliver hefty rate cuts, as Americans struggle with the cost of living and stagnating wages.

Powell steps down as chair in May. ?Markets show traders believe there will be just one rate cut by the middle of this year and one more by year-end. The Trump administration's most recent attack has not shifted those expectations so far.

Also in the mix is the Supreme Court's upcoming ruling on the legality of Trump's swathe of tariffs. Investors and economists alike believe the court will rule against the president, but the uncertainty is still hanging over markets. The court said on Friday it would issue its next rulings, which may include the ?tariff case, on January 14.

"While such an outcome is largely priced, according to prediction markets, if the ruling goes against the administration it adds to the risk of another sizeable increase in the U.S. primary budget deficit, something that risks a sharp lift in longer-dated yields if tariff ?revenue has to be refunded and is no longer collected," IG's Scutt said. (Reporting by Amanda Cooper Editing by Peter Graff)