Treasuries rally as some 'Trump trades' unwind ahead of Nov 5 vote

(Adds context, updates at 0830 GMT)

By Alun John

LONDON, Nov 4 (Reuters) - The 10-year U.S. Treasury yield fell sharply on Monday as traders looked to square some positions ahead of Tuesday's presidential election, moves shaped in part by a poll showing Democratic candidate Kamala Harris with a surprise lead in Iowa.

The yield on the benchmark 10-year note was last down 5 bps at 4.31%. The two year Treasury yield was down 3 bps at 4.17%.

"There's been a bit of a reversal of the 'Trump trade' that we've been seeing over the past few weeks," said Samy Chaar, chief economist Lombard Odier.

"The race doesn't look the same today as it did on Friday. It's not changed to the point where you can say she (Harris) has a lead, but he (Trump) no longer has strong momentum."

Yields had been rising in the past few weeks as investors put on trades betting Republican candidate Donald Trump could be president again.

The current market consensus is Trump's policies on immigration, tax cuts and tariffs would put upward pressure on inflation, bond yields and the dollar, and the 10-year yield has risen over 50 basis points since the start of October.

Part of this rise in yields has been down to economic data that has come in better than many had feared, causing markets to reprice expectations for the Federal Reserve's rate cut path.

Yet analysts at JPMorgan said about 21 basis points of the recent move higher in 10-year yields was accounted for by expectations the Republican party could win the Presidency and both houses of Congress.

The weekend poll showed Harris leading Trump 47%-44% in Iowa, which has been trending deeply Republican in recent years.

It is within the 3.4 percentage point margin of error, and other polling shows the

race is tight

in the country's seven key battle ground states.

Other asset classes were also moving to reverse some Trump trades. The dollar was also weaker on the day against most major currencies, and dropped 0.6% on the rate-sensitive Japanese yen.

Also in the mix for U.S. Treasuries was last Friday's data showing 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.

Yields initially fell on the news, but rose late in the day on Friday, which analysts attributed to nervousness ahead of the election.

(Reporting by Alun John; Editing by Amanda Cooper)