TREASURIES-Yields slip from three-month high

By Karen Brettell

NEW YORK, Oct 24 (Reuters) - Benchmark 10-year Treasury yields fell from a three-month high on Thursday after reaching levels that drew buying interest, though the market is expected to remain under pressure ahead of next week's jobs report for October and the November U.S. elections. A much stronger than expected jobs report for September has sent yields higher as investors reprice for a less dovish Federal Reserve.

"The fundamentals of the U.S. economy have picked up," said Michael Lorizio, head of U.S. rates trading at Manulife Investment Management in Boston. The September jobs report "caught us all off guard ... That caused less risk-taking from market participants and the result of that is higher yields."

Next week's jobs report for October is expected to show that employers added 140,000 jobs during the month. Data on Thursday showed that the number of Americans filing new applications for unemployment aid unexpectedly fell last week, but more people were collecting benefits in mid-October, which raises the risk of a rise in the jobless rate this month.

Traders are now pricing in a 69.8% chance of a 25 basis point cut at both of the Fed's November and December meetings, a 28.4% chance of a cut at only one meeting and a 1.7% probability the Fed will keep rates steady through year end, according to the CME Group's FedWatch Tool.

Benchmark 10-year note yields were last down 0.8 basis points at 4.234% after reaching 4.26% on Wednesday, the highest since July 26.

Two-year yields fell 1.4 basis points to 4.072%. The yield curve between two-year and 10-year yields was little changed on the day at 16.2 basis points.

Investors have been cautious to buy bonds ahead of the Nov. 5 U.S. elections. Betting markets including Polymarket show that Donald Trump is more likely to win the presidency, and Republicans may also take a majority in the Senate and House of Representatives.

The U.S. budget deficit is expected to worsen under a presidency of either Trump or Kamala Harris and an increase in government spending would likely lead to more Treasury issuance.

Trump's policies on tariffs and illegal immigration are also expected to increase inflation.

The Treasury Department will sell $24 billion in five-year Treasury Inflation-Protected Securities later on Thursday.

(Reporting By Karen Brettell, editing by Nick Zieminski)