Gap between German and US yields widens after Trump team attacks Powell

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German 10-year yield down just over 1 basis point at 2.81%

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Gap between US and German 10-year yields largest since November at 138 bps

(Updates with morning trading)

LONDON, Jan 12 (Reuters) -

German bond yields slipped on Monday while U.S. Treasury yields rose after the Trump administration threatened Fed

Chair Jerome Powell

with a criminal indictment, raising investor fears over the independence of the world's top ?central bank.

On Sunday, Powell said the Fed received subpoenas from the Department of Justice related to remarks he made to Congress last summer about ?cost overruns for a $2.5 billion renovation project at the Fed's headquarters in Washington.

German 10-year yields were ?last down just over 1 basis point on the day at 2.81% having ?last week posted their biggest ?fall since October. Two-year Schatz yields were flat at 2.1%.

Another attack on the Fed has few implications, if any, for how the European Central ?Bank conducts monetary policy. But the news added to ?investor concerns about the reliability of the U.S. as an investment destination, funnelling more capital into markets such as Europe.

Howe Chung Wan, head of Asian fixed income at Principal Asset ?Management in Singapore, said the news would "only add" ?to calls for ?more diversification away from Treasuries, though he said it was too early to necessarily see this as a "sell America trade"

U.S. 10-year Treasury note yields were up 2 bps at 4.193%, and those on ?30-year bonds, which tend to reflect investor sentiment towards long-term government finances, rose 3.7 bps to 4.857%.

Yields move inversely to prices.

That brought the gap between U.S. and German 10 year yields to 138 basis points, its largest since November last year.

And investors around the world are waiting to see what happens next, with markets potentially playing an important role.

"I think the administration is still extremely sensitive to the market reaction. ?There is ?a feedback loop if risk markets react in an adverse way," Wan said .

"The other part is regards to the politicians... we have already seen some of the Republicans are out there ?saying this is not one that they will stand for." he added.

Other European yields were also marginally lower, roughly in line with the German benchmark. Italy's 10-year yield was at 3.45% and France's at 3.52%.

Last week saw a raft of economic data in both the U.S. and euro zone.

In Europe,

inflation

came in below expectations, helping yields to fall, while U.S. data painted a picture of a U.S. economy that continues to generate jobs with moderating inflation, meaning there could be little ?room for the aggressive rate cuts President Donald Trump wants from the Fed.

At present, market participants expect no Fed cuts until June, a view that Sunday's developments did not alter.

This week is expected to bring more bond issuance from Germany, Austria and Italy. (Reporting by ?Amanda Cooper and Alun John, additional reporting by Ankur Bannerjee in Singapore; editing by Thomas Derpinghaus and Jason Neely)