US bond yields slip before 3-year auction

NEW YORK: US Treasury yields fell on Monday as traders braced for $83 billion worth of government debt supply tied to the November refunding this week and awaited the outcome of the US congressional elections on Tuesday.

Lower global stock prices and recent oil market weakness offset an upbeat October US payrolls report on Friday and uneasiness about growing federal borrowing, analysts said.

Investors also will seek clues about the Federal Reserve's view on future interest rate increases when policymakers meet on Wednesday and Thursday.

"Markets this morning are cautious and slow despite overnight declines in Asian stocks and continued stagnation in crude oil," said Jim Vogel, an interest rates strategist at FTN Financial.

At 8:49 a.m. (1349 GMT), the yield on benchmark 10-year Treasury notes was more than 1 basis point lower at 3.197 percent.

The 30-year bond yield dipped 1.2 basis points to 3.442 percent after on Friday touching 3.464 percent, which was the highest since July 2014.

The two-year yield slipped 0.5 basis point at 2.907 percent after hitting 2.920 percent on Friday, a level not seen June 2008.

At 1 p.m. EST (1800 GMT), the Treasury will sell $37 billion of three-year notes, the first leg of the government's quarterly refunding that is expected to raise $28.7 billion in new cash to fund the federal deficit.

Analysts expected solid demand for the latest three-year supply, which is the most since May 2010, but were cautious about bidding for the record amounts of 10-year and 30-year offerings later this week.

In "when-issue" activity, traders expected the latest three-year issue to sell at a yield of 2.979 percent , just below a near 11-1/2 year high set at the three-year auction in October.

Declining purchases from overseas central banks, together with rising hedging costs, are risks for the longer-dated auctions.

On the other hand, data suggested speculators pared their bearish bets on 10-year Treasuries last week, while asset managers built record bullish positions in 10-year T-note futures, Commodity Futures Trading Commission data released on late Friday showed.

The US elections on Tuesday will determine whether Democrats wrest one or both of the two chambers of Congress from Republicans.

If Democrats win control of the House of Representatives, as many polls are indicating, analysts anticipate further gridlock that will not yield any fiscal legislations such as the massive tax cuts enacted last December.

The latest polls also showed Republicans will likely retain their majority in the Senate.