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TREASURIES-U.S. bond yields fall as election count points to Washington gridlock

TOKYO, Nov 5 (Reuters) - U.S. Treasury yields fell on Thursday as investors bet the Republicans would retain the control of the Senate and curb any big spending plans by Democrat Joe Biden, seen as just a step away from winning the White House.

Biden predicted a U.S. election win over President Donald Trump after pivotal victories in Michigan and Wisconsin, as the Republican incumbent sought to offset a narrowing path to re-election with lawsuits and demands for a recount.

But Democrats are falling short of expectations in the Congressional elections, with the Senate looking increasingly likely to stay in Republican hands, prompting investors to unwind bets on big stimulus by Democrats.

The benchmark 10-year yield slipped to 0.738%, having fallen more than 20 basis points from well below a five-month high of 0.945% touched briefly on Wednesday when markets bet a blue wave election outcome.

The 30-year yield slid to 1.503% from Wednesday’s high of 1.757%. The yields on both maturities were at their lowest in almost three weeks.

“The yield curve has steepened too much as the market has priced in fiscal expansion. In the near-term, I think the curve will flatten,” said Akira Takei, fund manager at Asset Management One.

The yield spread between 10- and 30-year yields had risen to 82.1 basis points late last month on rising bets on a blue wave, in which the Democrats take the White House and both houses of Congress.

The spread tightened to 76.5 basis points on Thursday, but that was still above its July low of 63 basis points and this year’s low of 27 basis points hit in March.

Global bond prices could gain further if the Bank of England step up its monetary easing further at its policy announcement later on Thursday.

The bank is widely expected to expand its asset purchase programme by 100 billion pounds ($129.72 billion) to 845 billion pounds. The Telegraph reported the central bank is considering negative interest rates.

The Federal Reserve is scheduled to release its latest policy statement on Thursday, with investors almost unanimously expecting no change in policy.

Reporting by Hideyuki Sano; Editing by Sam Holmes

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