TREASURIES-US yields mixed as election risks rise after solid 10-year note auction

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Online betting odds favor Trump victory

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US services index rises, helps extend earlier gains in yields

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US yield curve flattens

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US Treasury 10-year auction shows solid results

(Recasts; adds new comments, graphics; updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 5 (Reuters) - U.S. Treasury yields were mixed on Tuesday, with longer maturities reversing earlier gains, as volatility intensified toward the market close and investors braced for the U.S. election results which will start to trickle in in a few hours.

A generally well-received 10-year note auction also depressed yields.

Treasury yields initially rose across the board after online prediction markets started to favor Republican former President Donald Trump again over Democratic nominee Vice President Kamala Harris for the nation's top job.

Millions of Americans headed out to vote on Tuesday for the next U.S. president in a contentious race whose final 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. But in the afternoon, the Trump odds on PredictIt narrowed a bit, while those on Kalshi and Polymarket remained decidedly in favor of the former president. That may have pressured longer-dated yields.

"It's market volatility into the election and really the market trying to fine-tune the odds of a Trump versus Harris presidency," said Gennadiy Goldberg, head U.S. rates strategy at TD Securities in New York.

"If you look at the odds of a Republican sweep, they have declined today, but marginally. But there really hasn't been a lot of big movements on the betting sites."

Trump's economic plan, which includes imposing tariffs on European and Chinese imports, is likely to reaccelerate inflation and add to the massive U.S. fiscal deficit. That means more issuance of U.S. government debt to bridge the deficit, a scenario likely to flood the market with Treasuries leading to a spike in yields.

In afternoon trading, the benchmark U.S. 10-year yield slipped 1.8 basis points (bps) to 4.289%.

The $42 billion 10-year auction priced lower than expected with a high yield of 4.347%, suggesting solid demand. The bid-to-cover ratio, another measure of demand, was 2.58. Analysts said this was higher than the 2.48 at the October reopening and the 2.32 at the August refunding.

On the short end of the curve, the U.S. two-year Treasury resumed its climb, rising 2.1 bps to 4.197%.

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.

"Economic data has painted a resilient picture for the U.S. economy," said Chip Hughey, managing director of fixed income at Truist Advisory Services in Richmond, Virginia.

"That runs counter to the idea that the Fed will cut rates aggressively. Today we saw strong ISM services data that justifies the string of reports that we have seen for the last six weeks that the economy continues to chug along nicely."

In other maturities, U.S. 30-year yields fell 4.4 bps to 4.451%.

The U.S. yield curve flattened on Tuesday, with the gap between two-year and 10-year yields at 12.9 bps, at 9.2 bps 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.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard Chang)