(Updates with latest price action, chart, comment)
LONDON, Nov 4 (Reuters) - Long-dated U.S. Treasury yields tumbled off five-month highs on Wednesday as the results of the U.S. election proved too close to call, raising the prospect of prolonged political uncertainty and casting doubt on the fate of a much-needed spending package.
This backdrop saw investors rush to U.S. Treasuries, one of the world’s safest assets, sparking the biggest one-day drop in 10- and 30-year bond yields since June.
The benchmark 10-year yield was last down 8 basis points on the day at 0.79%, but off session lows. It had briefly jumped to a five-month high of 0.9450% at the start of Asia trading.
Thirty-year U.S. Treasury yields fell 9 bps to 1.56% . Short-dated bond yields also fell but to a lesser degree .
“The move in U.S. Treasury yields is a clear indication that a safety trade is taking place - but that prospect could change as we get more results,” said Seema Shah, chief strategist, Principal Global Investors in London.
“As the day progresses and the U.S. wakes up there will be understanding that we are set for more volatility.”
Trump falsely claimed victory over Democratic rival Joe Biden with millions of votes still uncounted in a tight White House race that will not be resolved until a handful of states complete vote-counting over the next hours or days.
Since mid-October, U.S. long-term yields have risen rapidly as Biden’s lead over Trump in opinion polls encouraged some investors to price in the chance of big fiscal spending in the case of a Democrat victory.
However, Trump’s lead in hotly contested Florida caused an unwinding of some of those bets.
“What markets will be disappointed with should this end up being a dragged out affair is the lack of a swift stimulus package that would inevitably buoy share prices,” said Stuart Clark, portfolio manager at Quilter Investors in London.
“We are going to have to wait to see what all this means for the economic recovery, but in the short-term it is not the scenario investors wanted.”
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes narrowed to 64 bps. That suggests investors expect less fiscal spending to fight the coronavirus shock as Trump’s prospects for a second term improve.
A Republican government is likely to spend less money on stimulus than a Democratic administration, another factor that has pushed down longer-dated Treasury yields, analysts said.
Speculators’ net bearish bets on U.S. 30-year Treasury bond futures rose to a record high in the latest week, according to Commodity Futures Trading Commission data released on Friday, highlighting strong expectations in the run-up to the election for a spike in yields.
Reporting by Dhara Ranasinghe; Additional reporting from Stanley White in TOKYO and Carolyn Cohn in London; Editing by Sujata Rao
Our Standards: The Thomson Reuters Trust Principles.