June 3, 2019 / 3:44 PM / 4 months ago

GLOBAL MARKETS-Bond yields slip again as flight to safety goes on

* U.S. stocks up slightly in early trading

* Oil prices down in volatile trading

* Bond rally drives yields lower (Updates with early U.S. market activity, changes dateline; previous LONDON)

By Caroline Valetkevitch

NEW YORK, June 3 (Reuters) - A flight to safe-haven assets pushed U.S. Treasury yields to their lowest levels since September 2017 on Monday, while gold hit a 10-week high.

Market uncertainty has sent investors fleeing for safety, including low-risk debt, to seek protection from market volatility as trade conflicts between the United States and its trading partners have deepened.

Yields on U.S. two-year notes are on track for their biggest two-day fall since 2008, while U.S. benchmark 10-year Treasury yields earlier hit 2.071%, their lowest level since September 2017. German government bond yields fell to an all-time low.

The gloomy economic outlook has prompted traders to increase bets that the U.S. Federal Reserve will cut interest rates sooner rather than later.

The U.S. dollar fell and hit a 4 1/2-month low against the Japanese yen and a two-month low against the Swiss franc.

“Though we think the recent warning shot toward Mexico could be resolved, the road ahead on the global trade front is likely to remain challenged until the G20 later this month,” wrote Mark McCormick, global head of foreign exchange strategy at TD Securities.

In addition to increasing tariffs on Chinese imports in recent weeks, the White House has hardened its stance toward other countries, including Mexico.

Nonetheless, global stock markets edged higher on Monday after a torrid May that wiped $3 trillion off global equities.

The Dow Jones Industrial Average rose 41.92 points, or 0.17%, to 24,856.96, the S&P 500 gained 2.2 points, or 0.08%, to 2,754.26 and the Nasdaq Composite dropped 37.16 points, or 0.5%, to 7,415.99.

The pan-European STOXX 600 index rose 0.26% and MSCI’s gauge of stocks across the globe gained 0.39%.

In commodities, spot gold added 1.1% to $1,319.22 an ounce, while U.S. crude oil fell 0.36% to $53.31 per barrel.

RISING TENSIONS, FALLING ACTIVITY

With the bitter trade mood weighing, factory activity contracted in most Asian countries and the euro zone last month, surveys showed.

On Monday, the Institute for Supply Management said its gauge of U.S. manufacturing activity unexpectedly fell to its weakest level in more than 2-1/2 years in May amid global trade tensions.

A senior Chinese official and trade negotiator said on Sunday that the United States could not use pressure to force a trade deal, refusing to be drawn on whether the leaders of the two countries would meet at the G20 summit later this month.

The standoff between the world’s two largest economies goes beyond trade, with tensions running high ahead of the 30th anniversary of a bloody Chinese military crackdown on protesters around Beijing’s Tiananmen Square.

Additional reporting by Marc Jones in London; Kate Duguid and Richard Leong in New York; and Hideyuki Sano in Tokyo; Editing by Catherine Evans and Dan Grebler

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