*

Israel's strike on Iran raises oil prices, rekindles

inflation

concerns

*

Analyst surprised by lack of safe-haven bid for US debt

*

Says US yield curve may flatten if oil prices rise further

June 13 (Reuters) - U.S. Treasury yields rose on Friday

after Israel's strike on Iran, as markets absorbed a sudden

shock to commodity and stock prices, reversing some of the

declines after four days mainly in the red.

Israel said early on Friday it had struck Iranian nuclear

and military targets to block Tehran from developing atomic

weapons, and Iranian media and witnesses reported explosions

including at the country's main uranium enrichment facility.

The attack on multiple Iranian targets sparked a surge in oil

prices and rekindled inflation concerns, which overshadowed

economic and trade news earlier in the week that boosted demand

for U.S. sovereign debt and pushed yields lower.

Consumer data from the University of Michigan also showed an

unexpectedly large jump in sentiment and expectations. However,

markets appeared to show little interest in light of the

unfolding violence in the Middle East.

Earlier in the week, yields had fallen on

cooler-than-expected consumer inflation data, reported progress

in reaching a detente in the U.S.-China trade relations and

signs of deepening weakness in the U.S. labor market.

Slawomir Soroczynski, head of fixed income at Crown Agents

Investment Management in London, said the movement away from

U.S. debt instruments was a surprise under the circumstances.

"The price action in bonds does not show what one would

normally expect, which would be a safe-haven bid," he said.

"It is too early to call the full impact on bonds, but if

some energy forecasters' views start materializing and oil

prices go much higher, then we can see an impact on the shape of

the U.S. yield curve with aggressive flattening taking place

because short-term yields would rise more."

The so-called yield curve, which measures the spread between

yields on 2-year and 10-year U.S. notes, is often used to gauge

market estimates of recession risk.

The yield on the benchmark U.S. 10-year Treasury note

was last up 4.8 basis points to 4.405%. The yield

on the 30-year bond rose 4.7 basis points to

4.89%.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at a positive 44.9 basis points.

The two-year U.S. Treasury yield, which

typically moves in step with interest rate expectations, rose

4.6 basis points to 3.952%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.309% after closing at 2.284% on June 12.

The 10-year TIPS breakeven rate was last at

2.283%, indicating the market sees inflation averaging about

2.3% a year for the next decade.