TREASURIES-US yields dip after Japan bond recovery, Trump comments on Greenland

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Japanese bonds rally, underpin Treasuries

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Trump says US won't use force on Greenland

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Investors focus on US 20-year auction

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 21 (Reuters) - U.S. Treasury yields edged lower on Wednesday, pulling back from multi-month highs reached in the previous session after a steep selloff, as a recovery in Japanese government bonds helped steady global fixed-income markets.

Investors sold U.S. government debt on Tuesday in ?the wake of turmoil in Japanese bonds and President Donald Trump's threat to impose tariffs on European goods if the U.S. is not allowed to acquire ?Greenland. U.S. Treasuries, however, got a bid, pushing yields modestly lower, after Trump reiterated his plan for the U.S. ?to acquire Greenland, but told world leaders gathered in Davos, Switzerland, on Wednesday that ?he won't use force to ?do so. He noted that no nation other than the U.S. can secure Greenland.

In morning trading, the benchmark U.S. 10-year yield slid 1.2 basis points (bps) ?to 4.281%, after hitting on Tuesday its highest level since ?late August. Yields move inversely to prices.

The U.S. 30-year yield was down slightly at 4.912% . On Tuesday it rose to its highest level since early September.

On the front end of ?the curve, the U.S. 2-year yield slipped 1 bp to ?3.589%.

"The market ?likes the fact that Trump won't use force on Greenland, although it didn't like the things he said before that," said Tom di Galoma, managing director of rates and trading at Mischler Financial in ?Stamford, Connecticut, noting the president's comments about how Denmark is ungrateful to the U.S., among others. Trump said in his speech that the U.S. saved Greenland and then gave it back to Denmark after World War Two.

"At the end of the day, there's going to be some kind of financial settlement that will take place if this goes on. It's not going to be a military thing," di Galoma said.

INVESTORS WATCHING 20-YEAR U.S. BOND ?AUCTION

U.S. Treasuries ?also recovered amid the rebound in Japanese government bonds, although Japan's overall impact was limited. The 30-year Japanese government bond yield tumbled, down from an unprecedented 3.88% in the previous session. The benchmark 10-year yield ?fell after reaching a 27-year high on Tuesday.

"The magnitude of the pass-through is consistent with our take on the limited medium-term influence of JGB yields on U.S. rates," BMO Capital wrote in a research note.

"That said, we're cognizant that the bearish repricing underway in Japan will provide a touchstone for those investors anticipating higher U.S. rates."

Investors also will be closely watching the auction of $13 billion in U.S. 20-year bonds later on Wednesday, given the "sell America" theme on Tuesday that saw market participants dump Treasuries.

J.P. ?Morgan said the impact from a potential European selloff will be limited.

"European Treasury holdings are likely concentrated in private hands, suggesting a limited ability for governments to dictate a reallocation out of Treasuries. The technical backdrop is also less vulnerable to a sharp rise in yields relative ?to last April," the U.S. investment bank said in a research note. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Paul Simao)