TREASURIES-US bonds steady as Iran ship seizures fail to unsettle markets

(Adds new comment, US 20-year auction results; updates yields)

* Ship seizures in Strait of Hormuz raise ceasefire tensions

* Fed interest rate-cut expectations remain subdued, Reuters poll

* Warsh hearing highlights concerns over Fed independence

* US 20-year bond auction shows solid results

By Gertrude Chavez-Dreyfuss

NEW YORK, April 22 (Reuters) - U.S. Treasuries were flat to slightly lower on Wednesday as investors remained cautious amid rising tension between the U.S. and Iran after Tehran's seizure of two vessels in the Strait of Hormuz threatened the current ceasefirebetween the two sides. Iran's semi-official Tasnim news agency said the Revolutionary Guards escorted the two ships from the vitally strategic strait to Iranian shores. It was the first time that Iran had seized ships since the war began on February 28. U.S. crude futures rose 3.5% to $92.79 per barrel, but Treasury yields, which move inversely to prices, were flat overall in a sign that investors are looking past the ship seizures. In afternoon trading, the benchmark 10-year yield was marginally higher at 4.294%. U.S. 30-year yields drifted higher as well to 4.90%.

At the shorter end of the curve, U.S. two-year yields, which reflect interest rate expectations, rose 1.5 bps to 3.794% . "The market seems to be taking any sign of a pause in the conflict as a set-up for a longer-term settlement," said Vinny Bleau, director of fixed income research at Raymond James in Memphis. "(The 10-year yield) not being able to hold above 4.30% is a good sign as well, in my view." The U.S. yield curve flattened modestly for a third straight session, with the gap between 2- and 10-year yields falling to 49.8 bps, compared with 50.9 bps late on Tuesday. The curve showed a bear flattening pattern where shorter-dated yields are rising faster than those on long-term maturities, reflecting expectations that the Federal Reserve will not reduce interest rates anytime soon due to elevated inflation.

"The bond market is telling you that there's going to be more inflation than you think," said Matthew Vegari, head of research at Clearwater Analytics in New York, noting that a 10% sustained increase in the price of oil translates to about 20 to 25 basis points of additional inflation.

"So if you think that we've added something like 40%-50% to the price of oil, and if you think that's going to be sustained, multiply that by 20-25 basis points, then we're talking about 1% additional inflation." A Reuters poll showed that most economists think the Fed will wait at least six months before cutting interest rates this year, noting that inflation remains uncomfortably high and underscoring a lack of urgency to move. There was no clear consensus where rates would end the year, but 71 economists still expected at least one cut. The median forecast expects a single reduction, matching the "dot-plot" projections released by the U.S. central bank last month.

U.S. 20-YEAR AUCTION RESULTS; WARSH HEARING TAKEAWAY

The Treasury's $13 billion auction of 20-year bonds on Wednesday was well-received, in line with expectations and pricing at 4.883%. That rate was lower than the one expected at the bid deadline, suggesting investors did not demand a premium.

The bid-to-cover ratio, another measure of demand, was 2.68x, lower than that posted in the last two auctions, but modestly higher than the average of the last six sales.

Since last month's auction, U.S. 20-year yields have risen by just 6 bps, hovering near the midpoint of their post-conflict range. JPMorgan noted that beneath that stability, the sector has seen significant volatility. The bond initially cheapened sharply on a relative-value basis, before retracing in recent weeks and realigning with fundamentals.

Investors also were digesting comments from Fed chief nominee Kevin Warsh's confirmation hearing on Tuesday before the Senate Banking Committee. During what was viewed as a contentious hearing, Warsh sought to reassure lawmakers that monetary policy would remain free of political influence even as an unresolved Justice Department investigation into current Fed Chair Jerome Powell threatens to delay Warsh's confirmation. "The hearing strengthens the view that Warsh may tighten conditions via balance sheet normalization while simultaneously loosening conditions by lowering interest rates," Jeffrey Roach, chief economist for LPL Financial, wrote in emailed comments. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Kirsten Donovan and Paul Simao)