* Political concerns raise safety buying of bonds
* Trump seen less likely to pass fiscal, tax policies
* Two-, 10-yr yield curve flattest since November
NEW YORK, May 17 (Reuters) - U.S. Treasury yields were on track on Wednesday for their biggest daily percentage drop since July as concerns grew that allegations against U.S. President Donald Trump would delay his efforts to cut taxes and increase infrastructure spending. A small but growing number of Trump's fellow Republicans called on Wednesday for an independent probe of possible collusion between his 2016 campaign and Russia, and one even mentioned impeachment, spurred by a memo from the fired Federal Bureau of Investigation chief saying Trump tried to impede the agency's investigation. It came after allegations that Trump had sought to end the FBI's investigation into ties between Trump's first national security adviser, Michael Flynn, and Russia. The events are seen as distracting lawmakers from passing legislation that investors had hoped would help boost economic growth. "The more focus there is on the headlines, the less there is on the stuff that the market really cares about, which is fiscal stimulus, tax reform, regulatory reform, any of those issues," said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York.
Benchmark 10-year notes gained a full point in
price to yield 2.22 percent, the lowest since April 21, and down from 2.33 percent late on Tuesday. The yield curve between two-year and 10-year notes flattened to the lowest level since Nov. 3 as investors reached for longer duration bonds. Longer-dated notes are viewed as having more potential upside than two-year notes, as the shorter-dated debt is highly sensitive to interest rate changes and the Federal Reserve is expected to hike rates next month. "It's a pure duration reach," said Tom di Galoma, a managing director at Seaport Global in New York. "People have decided that there is only so much the two-year can perform because the Fed is going to go in June." Bonds have also been boosted in recent days by weakening U.S. economic data, which has raised new doubts over whether the Fed is likely to raise rates an additional two times this year. Futures traders are pricing in a 65 percent chance of a June hike, down from 88 percent a week ago, according to CME Group's FedWatch Tool. Traders see only a 40 percent chance of the Fed raising rates two or more times by the year end, even though Fed officials have said two more rate hikes are likely in 2017.
(Editing by Cynthia Osterman and Richard Chang)