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Online betting odds favor Trump victory

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US services index rises, helps extend earlier gains in

yields

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US yield curve flattens

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US Treasury 10-year auction shows solid results

(Recasts; adds new comments, graphics; updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 5 (Reuters) - U.S. Treasury yields were

mixed on Tuesday, with longer maturities reversing earlier

gains, as volatility intensified toward the market close and

investors braced for the U.S. election results which will start

to trickle in in a few hours.

A generally well-received 10-year note auction also

depressed yields.

Treasury yields initially rose across the board after

online prediction markets started to favor Republican former

President Donald Trump again over Democratic nominee Vice

President Kamala Harris for the nation's top job.

Millions of Americans headed out to vote on Tuesday for the

next U.S. president in a contentious race whose final outcome

may not be determined for days. This could happen especially if

the margins in battleground states are as narrow as expected.

Online betting sites such as PredictIt, Kalshi and

Polymarket all show Trump ahead, although national polls remain

too close to favor any candidate. But in the afternoon, the

Trump odds on PredictIt narrowed a bit, while those on Kalshi

and Polymarket remained decidedly in favor of the former

president. That may have pressured longer-dated yields.

"It's market volatility into the election and really the

market trying to fine-tune the odds of a Trump versus Harris

presidency," said Gennadiy Goldberg, head U.S. rates strategy at

TD Securities in New York.

"If you look at the odds of a Republican sweep, they

have declined today, but marginally. But there really hasn't

been a lot of big movements on the betting sites."

Trump's economic plan, which includes imposing tariffs

on European and Chinese imports, is likely to reaccelerate

inflation and add to the massive U.S. fiscal deficit. That means

more issuance of U.S. government debt to bridge the deficit, a

scenario likely to flood the market with Treasuries leading to a

spike in yields.

In afternoon trading, the benchmark U.S. 10-year yield

slipped 1.8 basis points (bps) to 4.289%.

The $42 billion 10-year auction priced lower than expected

with a high yield of 4.347%, suggesting solid demand. The

bid-to-cover ratio, another measure of demand, was 2.58.

Analysts said this was higher than the 2.48 at the October

reopening and the 2.32 at the August refunding.

On the short end of the curve, the U.S. two-year Treasury

resumed its climb, rising 2.1 bps to 4.197%.

U.S. yields further gained after U.S. services sector

activity unexpectedly advanced in October to a more than

two-year high, while employment firmed. The Institute for Supply

Management's (ISM) nonmanufacturing purchasing managers (PMI)

index accelerated to 56.0 last month from 54.9 the prior month,

the highest since August 2022.

"Economic data has painted a resilient picture for the U.S.

economy," said Chip Hughey, managing director of fixed income at

Truist Advisory Services in Richmond, Virginia.

"That runs counter to the idea that the Fed will cut

rates aggressively. Today we saw strong ISM services data that

justifies the string of reports that we have seen for the last

six weeks that the economy continues to chug along nicely."

In other maturities, U.S. 30-year yields fell 4.4 bps to

4.451%.

The U.S. yield curve flattened on Tuesday, with the gap

between two-year and 10-year yields at 12.9 bps,

at 9.2 bps from 12.1 bps late on Monday. The curve has been on a

steepening trend for the last few months, a scenario that occurs

when the Federal Reserve is cutting interest rates.

The Fed is once again expected to do so this week, reducing

rates by 25 bps, at the end of a two-day policy meeting which

ends on Thursday. But the Fed has not been the focus this week

for bond investors, with all the attention on the U.S.

presidential election.