TREASURIES-Bonds gain in set up for elections, Fed meeting

* Recent rise in yields sparks some Treasury buying

* Trade quiet as market players eye elections, Fed meeting

* 5-to-10-year yield curve hit record steepness Monday
(Adds analysts’ quotes, byline, updates prices)

By Chris Reese

NEW YORK, Nov 2 (BestGrowthStock) – U.S. Treasury debt prices
gained on Tuesday as investors took advantage of a recent rise
in yields and covered short positions heading into a two-day
Federal Reserve meeting and mid-term congressional elections.

Trade was lackluster as many investors stayed on the
sidelines ahead of the election results and the expected
announcement on Wednesday of a Fed asset purchase program
intended to prop up the economy.

The U.S. central bank is pretty much unanimously expected
to announce a new program of quantitative easing, intended to
prop up the economy, on Wednesday at the conclusion of its
policy meeting.

“The general feeling is no one wants to be short when the
announcement comes, just in case the Fed is more aggressive
than expected — more people are coming around to the view that
they are not likely to disappoint,” said Rick Klingman,
managing director of Treasury trading at BNP Paribas in New
York.

Speculation has varied widely over the possible size of the
program, although many expect buying of $100 billion of
Treasuries per month for five months, with an open-ended
commitment to buy more if deemed necessary.

Benchmark 10-year Treasury notes (US10YT=RR: ) were trading
10/32 higher in price to yield 2.59 percent, down from 2.63
percent late on Monday, while 30-year bonds (US30YT=RR: ) were
27/32 higher to yield 3.95 percent from 4.00 percent.

“Today’s focus is most likely about adjusting seat belts on
a day with no numbers and a mid-term election,” said William
O’Donnell, head of U.S. Treasury strategy at RBS Securities in
Stamford, Connecticut.

U.S. voting on Tuesday could push the Democrats from power
in Congress and could see the Republicans make gains, putting a
damper on President Barack Obama’s legislative agenda. For
details see [ID:nN01179745].

“The election will be important for the rates market as
among others, it will have implications for tax policy and
deficits,” said George Goncalves, head of U.S. rates strategy
at Nomura Securities in New York.

“A shift in power could be viewed by the risk market as
favorable — taking the bid away from Treasuries — and if
there is a sense that there will be more fiscal help or
eventual clarity on the tax code, the Fed might not need to go
as heavy on servings of quantitative easing in the months
ahead.”

The belly of the Treasury curve, where the Fed has been
forecast to focus the majority of its buying, also rose on
Tuesday, with the five-year Treasury note (US5YT=RR: ) trading
3/32 higher in price to yield 1.15 percent, down from 1.17
percent late on Monday.

As an illustration of some of the expectations of more Fed
buying in the belly, the spread between yields on five-
and 10-year notes closed at a record wide 146 basis points on
Monday. That narrowed on Tuesday to 144 basis points, however.
(Editing by James Dalgleish)

TREASURIES-Bonds gain in set up for elections, Fed meeting