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Longer-dated U.S. bond yields surge

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Trump win seen widening deficits

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Tariff plans could also increase inflation

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US yield curve hits steepest since late September

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Focus shifts to Fed meeting

(Updates prices; adds new comment, byline; previous dateline

LONDON)

By Harry Robertson and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK, Nov 6 (Reuters) - U.S. Treasuries fell

sharply on Wednesday, sending yields surging to multi-month

highs as Donald Trump's election victory stoked bets on economic

policy shifts that could boost deficits and inflation.

Republican former President Trump swept back to power early

in the U.S. morning, beating Democrat Vice President Kamala

Harris in crucial swing states and capping a political comeback

four years after he left the White House.

The benchmark 10-year Treasury yield rose as

much as 18 basis points to 4.479%, its highest since July, as

polls also showed Republicans winning control of the Senate and

a close race for the House of Representatives.

The yield, which moves inversely to the price, was last up

16.4 bps at 4.449%, on track for its biggest one-day rise since

April.

Trump campaigned on a platform of tax cuts, which economists

say would juice the economy, widen budget deficits and increase

government borrowing. He also touted tariffs, which analysts

expect to stoke inflation and reduce the Federal Reserve's scope

to cut interest rates.

"These election results will be really bad for fixed income

and can unwind a lot of the bullishness in (the market). Trump

keeps openly telling people that he will increase tariffs not

just on China but with every trade partner," said Andrzej

Skiba, head of BlueBay U.S. fixed income at RBC Global Asset

Management.

"We're talking 10% tariffs across all global partners.

This is a big deal because this could add 1% to inflation and if

you add 1% to next year's inflation numbers, we should say bye

to rate cuts."

The yield on the 30-year Treasury note last

traded 19 bps higher at 4.641%. That was its highest since late

May and set for its biggest one-day rise since March 2020,

underscoring concerns about future borrowing.

The MOVE index, the benchmark gauge of rate

volatility, hit a more than one-year high of 136.25 on Monday,

suggesting that Treasury yields across most maturities will move

at least 8.5 basis points per day in either direction over the

next month. It was at 130.43 on late Tuesday.

Harley Bassman, creator of the MOVE index and managing

partner at Simplify Asset Management, predicted that based on

his calculations, option prices anticipate an outsized move of

18 basis points in Treasury yields a day or two after the

election. That has been the size of the move so far on

Wednesday.

Trump clinched victory at around 5.30 a.m. ET after

capturing the battleground states of Wisconsin, Pennsylvania,

North Carolina and Georgia, according to Edison Research.

Treasury yields surged once it became clear Trump had

considerably improved on his 2020 election performance against

Joe Biden.

On the short end of the curve, the two-year yield

peaked at 4.312%, its highest since late July, and last traded

roughly 7.5 bps higher at 4.278%. It was on pace for its biggest

one-day gain in a month.

The U.S. yield curve steepened sharply on Wednesday, with

the gap between two-year and 10-year yields hitting 19.5

, the highest since late September. The curve was

last at 16 bps, from 8.8 bps late Tuesday.

The curve has been on a steepening trend for the last

few months, a scenario that occurs when the Fed is cutting

interest rates.

How much of Trump's tax cut plan will make it through

Congress depends on whether the Republicans achieve a clean

sweep. Close House races could take days to call.

U.S. budget deficits and government debt levels were

projected to surge under either candidate in the election,

according to several estimates, although Harris was expected to

add less debt than Trump.

The Fed, meanwhile, kicks off its two-day monetary policy

meeting on Wednesday and is expected to deliver another 25-bp

rate cut, though future decisions look less certain.

Traders have reacted to the election results by trimming

bets on Fed cuts next year, with rates seen staying above 4%

until May 2025. The market has priced in about 42 bps of cuts

this year and another 62 bps of reductions in 2025. Next year's

estimate came down from about 90 bps a few weeks ago.

"I start to worry when yields cross the 4.50% mark," said

Matt Orton, chief market strategist at Raymond James Investment

Management.

"If we don't reverse that upward trend, I would be more

reticent to add too much more risk until we hear from the Fed or

get a little bit more guidance with respect to where terminal

rates might lie."