NEW YORK: US Treasury yields rose modestly on Tuesday as selling spurred by this week's record amounts of longer-dated government debt supply offset investors' anxiety about the outcome of high-stake US congressional elections.
The $27 billion 10-year note auction, the second leg of this week's $83 billion quarterly refunding, fetched solid demand with indirect bidders buying a record amount.
Treasury supply has been growing to fund a widening federal budget deficit as a result of the massive tax cut enacted in December and a spending agreement reached in February.
The Treasury Department will complete the refunding which would raise $28.7 billion in fresh cash with a record $19 billion 30-year bond sale on Wednesday.
"The 10-year auction did go well with the indirect bids," said John Canavan, market strategist at Stone & McCarthy Reserve Associates in New York. "It does create a bit of optimism for tomorrow."
After the 10-year auction, investors increased their focus on the congressional elections.
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.
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 2:40 p.m. EST (1940 GMT), the yield on benchmark 10-year Treasury notes was up 1.1 basis point at 3.210 percent on moderate volume. 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 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.
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