News: NAB TREASURIES-U.S. yields slip ahead of CPI, results of midterm elections

	  Investors expect core U.S. CPI to have eased in October 

	  Rate futures price in 50-bps hike in December 

	  Republicans seen taking one of the chambers of Congress 

	  Divided U.S. govt good for U.S. bonds  

	  Treasury to auction U.S. three-year notes 

U.S. Treasury yields drifted lower on Tuesday, moving within narrow ranges, as investors awaited U.S. inflation data that could show some deceleration for October and ahead of midterm elections that may shift the current government dynamic.

Data on the U.S. consumer price index (CPI) is due for release on Thursday, with economists forecasting a decline in both the monthly and yearly core numbers to 0.5% and 6.5% respectively.

"There are people out there, ourselves included, that are saying that we are getting near to some good news on inflation," said Stan Shipley, fixed income strategist at Evercore ISI in New York. "Inflation expectations have actually come down."

Fed funds futures have priced in a 67% chance of a 50 basis-point rate hike in December, and a 33% probability of a 75-bps increase. FEDWATCH

Investors are also focused on Tuesday's U.S. midterm elections.

Control of the U.S. Congress is at stake in the midterms, with Republicans favored by polls and betting markets to win control of the House of Representatives and possibly the Senate.

That potential result would lead to a split government with Democrat President Joe Biden in the White House, an outcome seen as broadly favorable to bond markets, analysts said.

"The general feeling here is that Republicans are going to have a good night," said Evercore's Shipley.

"That's good for bonds because you're going to get a stalemate in Congress and you're not going to big initiatives for social programs. That means lower yields."

Investors expect a Republican majority to curtail Biden's ability to pursue expansive fiscal policy plans.

A Republican majority, even just in one chamber, "suggests that once inflation is under control, the onus is going to be on the Federal Reserve to offer stimulus to the economy", ING analysts said.

"This is our base case for aggressive interest rate cuts from the second half of 2023 onwards," they added.

The yield on 10-year Treasury notes US10YT=RR was down 5.7 bps at 4.157%.

An unexpected victory for the Democrats in the House would keep the door open to ambitious left-wing policies that could further fuel inflation, with a positive effect on interest rates, Philip Marey, U.S. strategist at Rabobank, said.

U.S. 30-year Treasury yields US30YT=RR were down 3.7 bps at 4.276%.

A closely-watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR remained inverted at -52.8 bps.

An inversion of this part of the yield curve typically precedes a recession.

Later on Tuesday, the Treasury will auction $40 billion in U.S. three-year notes.

November 8 Tuesday 10:13AM New York / 1513 GMT

							   Price		Current   Net 
											Yield %   Change 
													  (bps) 
 Three-month bills  US3MT=RR   4.095		4.1958	-0.010 

 Six-month bills   US6MT=RR	4.475		4.6422	-0.013 
 Two-year note  US2YT=RR	   99-115/256   4.6695	-0.056 

Three-year note US3YT=RR 99-16/256 4.5944 -0.055 Five-year note US5YT=RR 99-24/256 4.3292 -0.064 Seven-year note US7YT=RR 98-136/256 4.2453 -0.065 10-year note US10YT=RR 88-212/256 4.1528 -0.061 20-year bond US20YT=RR 85-84/256 4.5035 -0.061 30-year bond US30YT=RR 78-164/256 4.2749 -0.038

DOLLAR SWAP SPREADS

							   Last (bps)   Net		
											Change	 
											(bps)	  
 U.S. 2-year dollar swap		36.00		 1.50	 
 spread												

 U.S. 3-year dollar swap		14.50		 0.50	 
 spread												

 U.S. 5-year dollar swap		 6.25		 0.50	 
 spread												

 U.S. 10-year dollar swap		2.00		 0.50	 
 spread												

 U.S. 30-year dollar swap	  -48.50		 0.00	 
 spread