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CORRECTED-Peripheral European yields fall as U.S. election gridlock lingers

(In paragraph 8, corrects to say Spanish and Portuguese yields fell by around 1 bp, not 100 bp.)

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

LONDON, Nov 6 (Reuters) - Southern European bonds remained in demand on Friday, with Italian five-year yields still in negative territory, as riskier assets were supported by the gridlock in the U.S. presidential election.

Democrat Joe Biden inched closer to an election win over Republican President Donald Trump, but his party is falling short of expectations in congressional elections. Still, potential runoffs in Georgia could determine control of the Senate, where Republicans are in the majority.

Five-year BTP yields had turned negative for the first time on Thursday, falling to -0.020%. On Friday, they were down 1.7 basis points at -0.013%, while 10-year Italian government yields were down 1.8 bps at 0.613%.

“The new political landscape may well prove supportive for risk assets,” said ING analysts in a note to clients.

“As the U.S. election vote proceeded at a snail’s pace over the past two days, we observed a shift in the dominating narrative in financial markets. Risk assets have used that time to come to terms with a Biden ‘lame duck’ presidency, and some have even hailed it as the sweet spot,” ING analysts said.

With Biden leading in results but seen now unlikely to win the Senate, there was a large unwind of bets on a Democratic sweep of both Houses, a so-called “Blue Wave”.

As result, investors weighed prospects for big stimulus measures while cheering fading expectations of higher taxes and new regulations.

Spanish and Portuguese yields also fell by around 1 bps.

Benchmark 10-year German government bond yields were down by 1 bp at -0.643%.

U.S. non-farm payrolls later in the day are set, according to economists polled by Reuters, to come in slightly weaker for October than for the previous month, albeit likely to be overshadowed by the uncertainty surrounding the election.

Reporting by Olga Cotaga; Editing by Kevin Liffey

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