TREASURIES-U.S. yields inch higher as risk aversion eases

By Gertrude Chavez-Dreyfuss NEW YORK, Sept 29 (Reuters) - U.S. Treasury debt yields edged higher for a second straight session on Thursday, as risk appetite improved with oil and global stocks mostly posting gains after news on Wednesday OPEC would cut crude supply.

However, U.S. yields, which move inversely to prices, are still trapped in tight ranges and could well get back to the current downtrend given geopolitical tensions and political uncertainty, analysts said.

There is tension in India, for instance, which could restore bids for Treasuries. India said on Thursday it had conducted "surgical strikes" on suspected militants preparing to infiltrate from Pakistan-ruled Kashmir, making its first direct military response to an attack on an army base it blames on Pakistan and raising the risk of escalation.

Then there's the upcoming U.S. election. Any indication that Republican candidate Donald Trump is gaining momentum heading into the election could inject uncertainty into the market and boost Treasury prices, said Mike Materasso, co-chair of Franklin Templeton's fixed income policy committee in New York.

"I wouldn't get caught up in the short-term moves in the Treasury market," said Materasso. "The oscillations of five to 10 basis points are not that significant because if you look at the 10-year chart over the last three months, we're still trading in a narrow range." Concerns about Deutsche Bank and Wells Fargo remained a focus for the market and investors are closely watching developments at both banks. Deutsche Bank, which has spurred a bid for Treasures for most of this week, has been embroiled in a $14-billion legal battle with the U.S. government in connection with the bank's issuance and underwriting of mortgage-backed securities.

Wells Fargo is feeling the effects of a sales scandal involving the creation of as many as 2 million accounts without customers' permission.

In mid-morning trading, U.S. benchmark 10-year Treasury notes were down 6/32 in price for a yield of 1.589 percent, up from 1.567 percent late on Wednesday.

U.S. 30-year bonds fell 16/32 in price, yielding 2.312 percent, up from Wednesday's 2.288 percent.

On the front end of the curve, U.S. two-year notes were down 1/32 in price for a yield of 0.769 percent, up from 0.754 percent on Wednesday.

The yield curve has also steepened, suggesting that global uncertainty and an upcoming U.S. election will keep the Federal Reserve on hold for now and prevent investors from buying the front-end.

The spread between five-year and 30-year yields widened to 116 basis points on Thursday.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci)