TREASURIES-US bonds slide as investors weigh Middle East risks, Trump optimism

* US-Iran talks could resume soon, officials say

* Adding duration to bond portfolio makes sense, analyst says

* Oil flows will not normalize anytime soon, analyst says

* US 2/10 yield curve bear steepens (Adds new comment, updates yields)

By Gertrude Chavez-Dreyfuss

NEW YORK, April 15 (Reuters) - U.S. Treasuries retreated on Wednesday, reversing some of their recent gains but holding within narrow ranges, as investors remained anxious about developments in the Middle East, even as President Donald Trump said the conflict could end soon.

Trump said on Wednesday that the world should watch out for an "amazing two days", while U.S. forces imposing a blockade turned back vessels leaving Iranian ports.

U.S. and Iranian officials are expected to return to Pakistan for more talks and Vice President JD Vance, who led the U.S. delegation at negotiations that ended on Sunday without a breakthrough, said he felt positive about where things stood.

Chip Hughey, managing director of fixed income at Truist Wealth in Richmond, Virginia, said because there is an "appetite to negotiate a deal" from both the United States and Iran, there was a sense of optimism in the bond market that a resolution to the conflict is not far behind.

As a result, he said, "we have upgraded our view on duration. When Treasury yields touched their highest point in roughly 10 months at the peak of the conflict, we saw that as an opportunity to lock those yields and complement our short-dated exposure."

Duration, measured in years to maturity, indicates how much a bond's price is likely to rise or fall when rates change. Long-duration bets typically involve buying longer-dated assets and are often viewed as a risk-seeking move because longer-maturity debt is more exposed to uncertainty in the economic and rate outlook.

In afternoon trading, the benchmark 10-year yield, which moves inversely to the price, was up 2.5 basis points at 4.282% , while U.S. 30-year yields rose 2.4 bps to 4.893% .

On the shorter end of the curve, the two-year yield, which reflects interest-rate expectations, was down 1.5 bps at 3.766% .

CAUTION STILL WARRANTED

Overall, Will Compernolle, macro strategist at FHN Financial in Chicago, remained guarded about the end to the Iran war. He noted that all the talk about the resumption of U.S.-Iran negotiations was "better than escalation, but it still doesn't mean that global energy markets are going to normalize anytime soon".

"I think the market is also becoming pretty desensitized to some of these partially optimistic headlines. And as far as the Treasury market is concerned, the 10-year yield has stayed within very narrow ranges because until there's a concrete development, either with escalation or peace, there's no reason to re-price."

The U.S. yield curve slightly steepened on Wednesday, with the gap between two-year and 10-year yields at 51.1 bps , compared with 49.9 bps late on Tuesday.

The curve exhibited a bear steepening move, with long-term yields rising faster than those on the short end of the curve, which many analysts said was likely a reversal of the flattening trades of the last few days.

When the curve steepens, it suggests that inflation expectations are picking up, and this is manifested in the sharper selloff on the long end of the curve. This has caused the rate futures market to effectively price out rate cuts by the Federal Reserve in 2026, or even factor in rate tightening next year.

That underlying caution was reflected in modest moves across the Treasury curve. U.S. rate futures showed about 9 bps of easing this year, slightly up from 7 bps late on Tuesday, but down from 55 bps before the Iran war, according to LSEG estimates.

The rate futures likely took their cue from Wednesday's data even though it had little market impact on Treasuries, with the numbers showing a slowing economy.

U.S. monthly import prices increased less than expected in March, though details still pointed to firming imported inflationary pressures amid the Middle East conflict. Import prices rose 0.8% last month after a downwardly revised 0.9% gain in February, data showed.

In housing, U.S. homebuilder sentiment fell to a seven-month low in April, as the war with Iran led to higher prices for materials and mortgage rates, according to a survey.

The National Association of Home Builders/Wells Fargo Housing Market index dropped four points to 34 this month, the lowest since September 2025, and below the 50 break-even point for 24 straight months. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Alison Williams and Nick Zieminski)