November 6, 2018 / 3:44 PM / 10 days ago

TREASURIES-U.S. bond yields little changed ahead of auction, election results

    * U.S. to sell record amount of 10-year notes at 1 p.m. EST
    * Bearish bond bets cut before U.S. elections -survey

    By Richard Leong
    NEW YORK, Nov 6 (Reuters) - U.S. Treasury yields were little
changed on Tuesday as concerns about the outcome of high-stake
U.S. congressional elections offset worries about a record $27
billion in 10-year government debt for sale.
    The 10-year note auction, scheduled at 1 p.m. EST (1800
GMT), is the second leg of this week's $83 billion quarterly
refunding in which the Treasury Department aims to raise $28.7
billion in fresh cash.
    The latest polls show Democrats favored to win control of
the U.S. House of Representatives, a result that would give them
the power to block future legislation such as the massive $1.5
trillion tax cut package passed late last year. 
    Polls also showed Republicans would likely retain their
majority in the Senate, enabling them to approve U.S. Supreme
Court and other judicial nominations on straight party-line
votes.
    "The big event is about the election results, maybe even
more than the 10-year auction," said Jon Hill, interest rates
strategist at BMO Capital Markets in New York.
    Investors trimmed their bearish bets on longer-dated
Treasuries in advance of the elections as a hedge against the
possibility either Republicans or Democrats could win control of
both chambers of Congress, according to a J.P. Morgan Securities
survey released on Tuesday.
    At 10:15 a.m. (1515 GMT), the yield on benchmark 10-year
Treasury notes was marginally higher at 3.203
percent. It was still below the 7-1/2-year peak of 3.261 percent
reached on Oct. 9 during a dramatic bond market selloff.
    In "when-issue" activity, traders expected the latest
10-year issue to sell at a yield of 3.201 percent
, just below a 7-1/2-year high set at the 10-year
auction in October, Tradeweb data showed.
    The 10-year auction followed soft demand at three-year note
sale on Monday, whose data some traders speculate showed major
foreign buyers are pulling back their bids at Treasury auctions.

    Treasury supply has been growing to fund a widening federal
budget gap as a result of the massive tax cut enacted in
December and a spending agreement reached in February. 
    In addition to the elections and refunding, traders and
investors await clues about the Federal Reserve's view on future
interest rate increases when policymakers meet on Wednesday and
Thursday.
    Fed policymakers are expected to leave the U.S. central
bank's benchmark overnight lending rate unchanged in a range
between 2.00 percent and 2.25 percent at their upcoming meeting,
while the futures market implied they will raise rates for a
fourth time in 2018 at their Dec. 18-19 policy meeting.
November 6 Tuesday 10:15AM New York / 1515 GMT
                               Price                  
 US T BONDS DEC8               137-18/32    0/32      
 10YR TNotes DEC8              118-24/256   -2/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.32         2.3663    0.002
 Six-month bills               2.455        2.5204    0.005
 Two-year note                 99-236/256   2.9157    0.004
 Three-year note               99-168/256   2.9956    0.007
 Five-year note                99-68/256    3.0349    0.009
 Seven-year note               99-56/256    3.1254    0.007
 10-year note                  97-64/256    3.2047    0.006
 30-year bond                  92-32/256    3.4237    -0.007
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       28.70        -0.25     
 30-year vs 5-year yield       38.80        -1.00     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.75        -0.50    
 spread                                               
 U.S. 3-year dollar swap        15.50        -1.75    
 spread                                               
 U.S. 5-year dollar swap        13.75        -0.25    
 spread                                               
 U.S. 10-year dollar swap        5.75        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -11.00         0.25    
 spread                                               
 

    
 (Reporting by Richard Leong
Editing by Paul Simao)
  
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