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Nov 5 (Reuters) - Long-dated U.S. Treasury yields fell to three-week lows on Thursday, with the gap between short and long-dated bond yields tightening further as the prospect of a Democrat election sweep that would have unleashed massive fiscal stimulus faded.
Ten-year yields touched the lowest since mid-October at 0.72% and were last down 4 basis points on day. Thirty-year bond yields also hit three-week lows, touching 1.48% .
They have tumbled around 16 bps each in the past two sessions, pushed down by the uncertainty created by the U.S. election and a growing expectation that a big fiscal stimulus package is unlikely.
The two-year/10-year yield curve meanwhile flattened to mid-October levels below 58 basis points. It had widened as much as 77 bps at one point on Wednesday.
Democrat Joe Biden has moved closer to a U.S. election win over President Donald Trump after victories in Michigan and Wisconsin. But his party is falling short of expectations in Congressional elections, with the Senate looking increasingly likely to stay in Republican hands, making it hard to implement stimulus.
“The results for the Senate and the House point to a Biden presidency being an impotent one and stimulus swill be sub par and the Federal Reserve will be looking at delivering more support,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.
“Fundamentally you have to think about what is the scope for reflation in the next two years and it’s not that great.”
The Federal Reserve is scheduled to release its latest policy statement on Thursday.
With the final result of Tuesday’s presidential election still uncertain, the Fed is expected to stick closely to its last statement and repeat its pledge to do whatever it can to help the economy through the coronavirus-triggered recession.
Reporting by Dhara Ranasinghe and Suajata Rao; Editing by xxxx