US yields rise with falling oil, strong data and midterm elections in focus

By Sinéad Carew

Nov 3 (Reuters) - Yields on longer-dated US Treasuries were higher on Tuesday as investors waited for US midterm election results while monitoring economic data and watching for progress in Middle East diplomacy.

US Treasury yields pared gains briefly as oil futures turned lower after US President Donald Trump said he would cut funding for Israel after year end, in an interview with Fox News.

But the move in Treasuries was short-lived and yields gained steam again after the latest economic data, including stronger-than-expected labor market data. US job openings increased sharply in September while layoffs fell, supporting economists' views that the labor market remained on firmer footing despite tepid employment gains during that month.

"Treasury yields are repricing higher following an unambiguously strong set of economic data. JOLTS, factory orders, and durable goods are all pointing to resilient growth despite the weakness in AI and tech," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin, Texas.

Also, government bonds were facing some competition from the corporate bond market as Meta Platforms META.O filed for a five-part senior notes offering. While the tech heavyweight did not disclose its offer size, Bloomberg News reported that investors placed as much as $58 billion of orders on the offering.

And as US voters headed to the polls on Tuesday, for midterm elections that will decide who controls Congress for the last two years of Trump's presidential term, bond market investors were in a wait-and-see mode, according to Ed Al-Hussainy, fixed-income portfolio manager at Columbia Threadneedle.

"We'll get a sense of how this election has played out by tomorrow. There's no need to stick our necks out and put a lot of money on the line in markets today so the liquidity is a little bit lower," said Al-Hussainy.

"What that means in practice is anytime there is news ... (it) triggers an outsized reaction in terms of the movement in yields because there are just fewer buyers and sellers coming together to set the price."

While Wall Street's base case expectation is that the election will result in a divided Congress, which would limit either party's power to pursue its agenda, Sage's Urano said that investors were waiting to assess what the election might mean for the bond market.

"Once this is over and it's settled, we'll have a better direction on what the state of fiscal policy in the US looks like, debt limits, Treasury supply, and those are the factors that would affect the bond market," Urano said.

The yield on the benchmark US 10-year Treasury note rose 5.4 basis points to 4.948%. The yield on the 30-year bond rose 5.2 basis points to 5.321%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations, was at a positive 33.2 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 3.1 basis points to 4.614%.

The 10-year TIPS breakeven rate was last at 2.305%, indicating the market sees inflation averaging about 2.3% a year for the next decade.