TREASURIES-US bonds rise as Iran risks linger, but fail to rattle markets

(Adds new comment in paragraph 8, updates yields in paragraphs 10-11)

* Iran threatens strikes on Gulf ports

* Investors see few alternatives to Treasuries -analyst

* US home sales hit nine-month low, overshadowed by Iran conflict

* US rate futures price out rate cut this year

By Gertrude Chavez-Dreyfuss

NEW YORK, April 13 (Reuters) - U.S. Treasuries edged higher on Monday in choppy trading, rebounding from earlier declines, as investors showed little reaction to renewed escalation in the Middle East following a U.S. blockade of the Strait of Hormuz.

Roughly 20% of global oil supplies - about 20 million barrels per day - passes through the waterway.

As the Iran conflict entered its seventh week, war headlines have lost much of their market impact, leaving investors cautious but largely sidelined as they await clearer signals. The blockade came after ceasefire talks between the United States and Iran broke down over the weekend. In response to the U.S. action, Iran threatened to launch strikes on ports of its Gulf neighbors.

Oil prices jumped following news of the blockade, but later pared gains. Brent crude futures were last up 4.1% at $99.03 per barrel after settling 0.75% lower on Friday. U.S. West Texas Intermediate last changed hands at $98.90 a barrel, up 2.4% on the day, after a 1.33% loss in the previous session.

HEADLINE FATIGUE

Treasury yields, which move inversely to prices, initially advanced with oil, but that has since faded. Moves in Treasuries were generally muted and some analysts said headline fatigue has crept into the market.

"The market has reacted, as you would expect, with oil prices up and a bit of risk-off. But I do feel that the market is holding off here and not reacting too much to what happened," said Padhraic Garvey, head of global rates and debt strategy at ING in New York.

"There is a world out there where the U.S. takes control of this race and the war is not reignited. There are minor skirmishes here and there, but that's all very tolerable from a market perspective."

In afternoon trading, the benchmark 10-year yield was down 2 basis points at 4.297%. U.S. 30-year yields slipped 1.3 bps to 4.901% .

On the shorter end of the curve, the 2-year yield, which reflects interest-rate expectations, also dipped, down 2.1 bps at 3.781%.

Analysts said Treasuries benefited from some safe-haven demand. That notion of safe-haven buying, however, has been tested in recent weeks when Treasuries were sold off, in line with U.S. stocks, as the Middle East conflict began to ramp up.

"Where else do you go? If you start selling Treasuries, are you going to cash? Sure, you can go to cash, but that's not offering a great return, and the risk is there too," said Stan Shipley, fixed income strategist at Evercore ISI in New York.

"You're not going to equities if you're bailing out of Treasuries because you're scared of the risk. Equities are not the place to run to right now. So you're stuck here in Treasuries and most people think that the escalation will be relatively short-term, and that when we get into May, things could be better." Monday's economic data on U.S. existing home sales barely generated a ripple, given the intense focus on the Middle East conflict. U.S. existing home sales fell to a nine-month low in March, dropping 3.6% amid tight inventory and growing concerns over the labor market. In the inflation market, U.S. one-year inflation swaps, a measure of the outlook for future consumer prices, rose to 3.168%, from 3.07% late Friday. This reflected expectations that the U.S. consumer price index will average roughly 3.2% over the next 12 months, more or less in line with the latest CPI reading for March showing a year-over-year gain of 3.4%.

With the surge in oil prices, U.S. rate futures have effectively priced out expectations of an interest rate cut by the Federal Reserve, factoring in just 7 basis points of easing, compared with about 55 bps before the Iran war, according to LSEG estimates. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Susan Fenton, Rod Nickel)