TREASURIES-US yields advance as betting sites lean anew toward Trump election win

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Higher fiscal deficit seen regardless of which candidate wins

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US services index rises, help extend gains in Treasury yields

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US yield curve steepens slightly

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US Treasury to sell $42 billion in 10-year notes

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 5 (Reuters) - U.S. Treasury yields rose on Tuesday after posting sharp declines in the previous session, as online prediction markets have again started to favor Republican former President Donald Trump over Democratic nominee Vice President Kamala Harris for the nation's top job.

Millions of Americans are headed to the polls on Tuesday to decide who gets to be U.S. president in a contentious race whose outcome may not be determined for days. This could happen especially if the margins in battleground states are as narrow as expected.

Online betting sites such as PredictIt, Kalshi and Polymarket all show Trump ahead, although national polls remain too close to favor any candidate.

"Betting odds seem to favor a Trump win again. We had some consolidation over the weekend that sort of shifted the odds in the other direction, but that has since changed," said Tom di Galoma, managing director & head of fixed income trading, at Curvature Securities.

"On the margin though, no matter which candidate wins, you're going to see higher deficit spending. There are institutional accounts that want to be short rates/Treasuries as a result."

In late morning trading, the benchmark U.S. 10-year yield gained 4.7 basis points (bps) to 4.358%.

On the short end of the curve, the U.S. two-year Treasury resumed its climb, rising 4.6 bps to 4.22%.

U.S. yields further gained after U.S. services sector activity unexpectedly advanced in October to a more-than two-year high, while employment firmed. The Institute for Supply Management's (ISM) nonmanufacturing purchasing managers (PMI) index accelerated to 56.0 last month from 54.9 the prior month, the highest since August 2022.

In other maturities, U.S. 30-year yields rose 1.6 bps to 4.511%.

The U.S. yield curve steepened slightly on Tuesday, with the gap between two-year and 10-year yields at 12.9 bps , up from 12.1 bps late on Monday. The curve has been on a steepening trend for the last few months, a scenario that occurs when the Federal Reserve is cutting interest rates.

The Fed is once again expected to do so this week, reducing rates by 25 bps, at the end of a two-day policy meeting which ends on Thursday. But the Fed has not been the focus this week for bond investors, with all the attention on the U.S. presidential election.

Later on Tuesday, the U.S. Treasury will auction $42 billion in 10-year notes. It could well be that the selloff in Treasuries that pushed yields higher on Tuesday could be due to concession, in which investors sell Treasuries ahead of auctions to push up the yield before buying them back at a lower price.

Monday's U.S. three-year note sale saw soft demand, as it priced higher than expectations, with investors demanding a premium to buy the note. It's an outcome that was expected, however, due to election risks that forced investors to sit this one out. It could well happen to the 10-year note auction as well. (Reporting by Gertrude Chavez-Dreyfuss)