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TREASURIES-U.S. bond yields fall on election uncertainty, stimulus bets scaled back

 (Recasts, updates yields, adds analyst comments)
    By Karen Pierog
    CHICAGO, Nov 4 (Reuters) - U.S. Treasury yields tumbled on
Wednesday after incomplete election results pointed to a
still-divided national government and the likelihood for a
smaller stimulus plan to revive the pandemic-slammed economy. 
     Both Republican President Donald Trump and Democratic rival
Joe Biden had possible paths to reach the required 270 Electoral
College votes to win the White House, while Congress was likely
to remain split between the two parties.. 
    Treasury yields, which had climbed to multi-month highs
ahead of the election results, plummeted when chances faded for
a Democratic sweep, along with massive stimulus spending, that
had been priced into the market.
    The benchmark 10-year yield, which hit a session
low of 0.756%, was last at 0.7696%, well below a five-month high
of 0.945% touched briefly overnight. 
    The 30-year yield, which traded as high as
1.757%, was last at 1.5484%, up from a session low of 1.506%.
    “Yesterday afternoon the market was probably pricing in
about a 70%-75% chance of a (Democratic) sweep ... the back end
of the curve was for sale and there was significant selling
pressure," said Michael de Pass, global head of U.S. Treasury
trading at Citadel Securities. "As Trump won Florida and you
realized this was going to be a bit of a close race and not a
landslide, the tone changed very, very quickly.”
    Even if Biden were to win, a Republican-controlled Senate
would likely mean a less-generous aid package, easing the fear
of massive new supply hitting the market.
    "We don't have the risk of inflation coming from trillions
of dollars dumped into the economy. We don't have the risk of
all that supply having to be funded on top of the supply we're
still trying to fund from (the CARES Act)," said Tom Simons, a
money market economist at Jefferies in New York.
    Republican U.S. Senate Majority Leader Mitch McConnell on
Wednesday called on Congress to approve a new coronavirus aid
bill by year end.
    The market also mulled the possibility of a drawn-out court
battle with the Trump campaign seeking a recount in Wisconsin
and suing to stop vote counts in Michigan and Pennsylvania.

    "In that environment, I think you see sort of a drift lower
in rates and flatter in the curve," said Ben Jeffery, a
strategist at BMO Capital Markets in New York.
     Meanwhile, the U.S. Treasury said on Wednesday morning it
will sell $54 billion of three-year notes, $41 billion of
10-year notes and $27 billion of 30-year bonds next week.
 
    John Bellows, portfolio manager at Western Asset Management,
said a move down in long-term Treasury yields just after the
refunding announcement was only part of a broader swing tied to
politics during the day and that the agency’s plans were “kind
of a wash” in terms of their overall impact.  
    On Monday, the Treasury announced it expects to borrow $617
billion in the fourth quarter, assuming enactment of an
additional $1 trillion in spending.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, was last at 62.30 basis points, falling
from a session high of 77 basis points, the widest spread since
mid-March.
    November 4 Wednesday 3:29PM New York / 2129 GMT Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0925       0.0938    -0.002
 Six-month bills               0.1          0.1014    -0.011
 Two-year note                 99-246/256   0.1447    -0.023
 Three-year note               99-216/256   0.1782    -0.032
 Five-year note                99-162/256   0.3243    -0.067
 Seven-year note               99-164/256   0.5525    -0.097
 10-year note                  98-164/256   0.7696    -0.111
 20-year bond                  96-180/256   1.3148    -0.115
 30-year bond                  95-224/256   1.5484    -0.106
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.50         1.25    
 spread                                               
 U.S. 3-year dollar swap         8.00         0.75    
 spread                                               
 U.S. 5-year dollar swap         6.50         1.00    
 spread                                               
 U.S. 10-year dollar swap        2.25         1.75    
 spread                                               
 U.S. 30-year dollar swap      -33.00         2.75    
 spread (Reporting by Karen Pierog in Chicago, additional reporting by
Karen Brettell in New York, Ross Kerber in Boston, Dhara
Ranasinghe in London and Stanley White in TOKYO; Editing by
Kirsten Donovan and Grant McCool)
  
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