TREASURIES-Longer-dated US yields on track for monthly gains

July 31 (Reuters) - U.S. long-term bond yields were headed for monthly gains, with the 30-year yield pinned near a 19-year high, as investors grappled with uncertainty surrounding the U.S.-Iran conflict and the Federal Reserve's policy outlook.

The 30-year Treasury yield US30YT=RR was last at 5.204%, not far from Thursday's peak of 5.2444%. It has risen 29 basis points, putting it on track for its largest monthly increase since December 2024.

The benchmark 10-year yield US10YT=RR has climbed 25 basis points this month, its steepest increase since March.

The escalation in the Iran war pushed oil prices sharply higher this month, fuelling inflation fears.

Investors were also rattled by Federal Reserve Chair Kevin Warsh's reluctance to provide clear guidance on the policy outlook, fueling uncertainty over how aggressively the central bank would act if inflationary pressures intensify.

Reflecting those concerns, the gap between 2-year and 10-year Treasury yields US2US10=TWEB widened to 42.5 basis points from 28.9 basis points at the end of June, a classic bear-steepening move in which long-dated yields rise faster than short-term rates as investors demand greater compensation for future inflation risks.

The U.S. 2-year Treasury yield US2YT=RR was up 2 bps at 4.2581% and was set for a monthly rise of 12 bps.

With limited clarity from the policy meeting, investors latched onto domestic economic data for clues on the health of the American economy.

The annual personal consumption expenditures (PCE), the Fed's preferred inflation gauge, increased 3.7% in June after advancing by 4.1% in May, but the easing is likely to be temporary, given the recent surge in oil prices linked to the Iran conflict, data on Thursday showed.

"The softer inflation data along with Chair Warsh's comments ... downplaying both the effectiveness of the Fed's tools in fighting inflation and his commitment to 2% PCE inflation leave risks tilted to further steepening moving forward," J.P. Morgan analysts wrote in a note.

The 10-year TIPS breakeven rate, which subtracts the TIPS yield US10YTIP=RR from the nominal Treasury yield US10YT=RR and is viewed as a proxy for inflation expectations, was last at 2.409%, indicating the market sees inflation averaging about 2.4% a year for the next decade.

(Reporting by Siddarth S and Medha Singh in Bengaluru; Editing by Anil D'Silva)