LONDON, March 11 (Reuters) - U.S. Treasury yields

steadied on Tuesday, pulling away from five-month lows hit

earlier in the session, as signs of risk appetite returned to

world markets a day after a sharp selloff on Wall Street.

The two-year Treasury yield was trading at around 3.89% in

London trade, little changed on the day and up from as low as a

3.83% hit during Asian hours.

Ten-year yields were also little changed at around 4.21%

.

On Monday, two-year yields fell around 10 basis points in

their biggest daily drop since September after U.S. President

Donald Trump declined to rule out a recession as a result of his

tariff policies.

Wall Street stocks also suffered heavy losses on Monday but

in a sign that sentiment was recovering, equity futures pointed

to gains for U.S. stocks on Tuesday and that in turn took the

shine off safe-haven bonds.

"It's challenging to decipher Trump's policy and its impact

on the Treasury market," said Massimiliano Maxia, senior fixed

income specialist at Allianz Global Investors.

Maxia is currently neutral on Treasuries, but said his view

could change "if we have strong evidence of a significant

weakening of the U.S. economy. We have just seen some alarm

bells as of now."

But in one worrying sign for the bond market, a measure of

default risk was creeping higher again.

Spreads on U.S. government one-year credit default swaps

(CDS) - market-based gauges of the risk of a default - widened

to 43 bps on Monday and held at that level on Tuesday. This is

widest level since Nov.5., the day of the U.S. election.