By Matt Tracy

WASHINGTON, May 20 (Reuters) - A $16-billion sale of U.S. Treasury 20-year notes met with soft demand on Wednesday, as investors' uncertainty persisted around the war with Iran and the path of inflation.

The U.S. sold debt at a high yield of 5.122%, which was roughly the same as where the 20-year bond US20YT=RR traded before the sale.

Indirect bidders, which can include governments, fund managers and insurance companies, took an above-average portion of the sale at 67.7%, indicating that foreign demand remained solid. Overall demand was slightly below average at 2.55 times the amount of debt on offer, the weakest since February.

Primary dealers, which include financial institutions designated as trading counterparties by the Federal Reserve, took down 9.4% of the sale, which indicates "sufficient marketplace demand for this paper," said Vail Hartman, U.S. rates strategist at BMO Capital Markets, in a Wednesday note.

The slightly soft auction results follow a broad selloff in Treasuries over the past week, as investors weigh the inflation impact of the ongoing U.S. war with Iran and resulting elevated energy prices.

Yields retraced a portion of their Tuesday gains on Wednesday after a relatively strong 20-year Japanese bond auction. They also retreated in part on U.S. President Donald Trump's comment that the U.S. and Iran were in the final stages of deal talks to end the war.

"This is precisely the reaction function the market has had to geopolitical developments and the moves in oil over the past couple of months," BMO's Hartman said.