US bond yields little changed ahead of auction, election results

NEW YORK: US Treasury yields were little changed on Tuesday as concerns about the outcome of high-stake US 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 US 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 US 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 US 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.