TREASURIES-10-year yields hit 4-month high before US elections, fresh supply

(Updated at 1500 EDT)

By Karen Brettell

NEW YORK, Nov 1 (Reuters) -

Benchmark 10-year U.S. Treasury yields hit a four-month high on Friday, with some investors wary of buying bonds ahead of the U.S. presidential election on Tuesday.

The move came after an initial yield drop on much weaker-than-expected jobs data for October, which analysts said was likely hurt by the impacts of recent hurricanes and job strikes.

The U.S. fiscal trajectory is expected to worsen under a presidency by either Republican former President Donald Trump or Democrat Vice President Kamala Harris.

"Either candidate will be raising deficit spending," said Tom di Galoma, head of fixed income trading at Curvature Securities.

Opinion polls show a tight race, though betting sites are placing greater odds on Trump winning the U.S. presidency.

Trump's policies, including the introduction of new tariffs, are seen as likely to stoke inflation, which may push yields higher.

The Treasury will also sell $125 billion in coupon-bearing debt next week, which may weigh on the market. This will include $58 billion in three-year notes on Monday, $42 billion in 10-year notes on Tuesday, and $25 billion in 30-year bonds on Wednesday.

Benchmark 10-year yields were last up 7.7 basis points at 4.361%, the highest since July 5. It follows a 48 basis point increase in October, which was the largest monthly basis point increase since April.

Two-year yields rose 3.5 basis points to 4.201% and reached a three-month high of 4.247% earlier on Friday. The yields jumped 51.5 basis points last month, the largest monthly increase since Feb. 2023.

The yield curve between two-year and 10-year notes steepened by around 5 basis points to 16 bps.

Yields initially tumbled after data showed that nonfarm payrolls increased by 12,000 jobs last month after surging by a downwardly revised 223,000 in September. Economists polled by Reuters had forecast payrolls rising 113,000.

The sharp drop in jobs came amid disruptions from hurricanes and strikes by aerospace factory workers, but the unemployment rate held steady at 4.1%.

"Clearly, there was a weather impact on the data, exactly how much it is, it's difficult to say. And then further, you know, the response rate to the payroll survey was very, very low, which just added uncertainty to the number we're looking at here," said Matt Bush, U.S. economist at Guggenheim Investments.

Traders are now pricing in 98% odds of a 25 basis point cut at the Fed's Nov. 6-7 meeting, up from 93% before the data, and an 82% probability of a 25 basis point reduction at both its November and December meetings, up from 71% earlier on Friday, according to the CME Group's FedWatch Tool.

(Reporting by Karen Brettell; Additional reporting by Chuck Mikolajczak; Editing by Philippa Fletcher, Sharon Singleton, Andrea Ricci and Diane Craft)