* Protracted conflict shifts market's focus to growth

fallout

* Short-dated debt outperforms long-dated bonds on Monday

* Central banks walk tightrope; higher-for-longer rates

expected

By Rae Wee

SINGAPORE, March 30 (Reuters) - Global government bonds

slid towards their biggest monthly losses in more than a year as

investors weighed the risks from a prolonged war in the Middle

East on inflation and growth.

However, some relief for short-dated debt on Monday

suggested markets were shifting focus towards the economic

fallout of a conflict showing few signs of de-escalation as it

entered a second month.

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

inversely to its price - was set for a monthly rise of roughly

50 basis points (bps), its largest since October 2024, although

it retreated roughly 4 basis points in Asia to 3.8770%.

Australia's three-year yield was up about 50 bps

for the month, the most in 17 months, despite easing more than 9

bps on Monday to 4.715%.

Japan's two-year government bond yield was up

12.5 bps for March, after dipping 2 bps to 1.36%.

Monday's respite followed a climb to multi-month peaks for

short-end bond yields in March.

"Now that the reality is sort of sinking in that perhaps the

oil price might stay high for a bit longer, given that it's hard

to see an end to the war anytime soon, the growth impact is

starting to become more of a focus," said Moh Siong Sim, a

strategist at OCBC.

"The buzzword here is stagflation," he said. "Initial focus

was on inflation. Now the 'stag' bit is moving into the picture,

and that's perhaps explained why short-end bond yields have come

off."

Oil prices remain firmly above $100 per barrel, leading

investors to bet on higher-for-longer global interest rates.

That dynamic has overshadowed the traditional safe-haven

allure of sovereign debt.

Investors currently wager the Federal Reserve will leave

rates on hold this year, while the European Central

Bank and Bank of England are seen

raising rates at least twice over the remainder of 2026.

The five-year U.S. Treasury yield was set for a monthly gain

of roughly 51 bps, its largest since October 2024, while the

benchmark 10-year yield was headed for a roughly 43

bps rise.

Eugene Leow, senior rates strategist at DBS, said the

"marked deterioration" in bids at the recent two-year and

five-year U.S. Treasury auctions underscores the "significant

stresses" facing the market.

"Investors are clearly on the sidelines amidst uncertainties

over how the Iranian conflict will play out," he said.

In Australia, 10-year yields are up 42 bps for

the month, the most in 17 months. Japan's 24.5 bps rise in its

10-year yield would mark the steepest advance

since December.

Chinese government bonds have held up relatively well

compared to peers as investors bet the world's second-largest

economy will be better insulated from the oil shock due to its

ample crude stockpiles, dominance in green energy and subdued

consumer price inflation.

Ten-year Chinese government bonds are up only

slightly this month, while two-year bonds have

climbed more than 10 bps, set for their largest monthly rise

since December 2024.