By Carolyn Cui

U.S. Treasury prices fell on Tuesday, as early voting results showed that Hillary Clinton held a lead in some battleground states.

As of late morning Eastern Time, the Democratic nominee held leads in five key states including Florida and Ohio that Republican candidate Donald Trump must win to keep his path to the presidency alive, according to live estimated results from election data service VoteCastr.

"The fact that some of these polls are coming in showing somewhat of a lead here for Hillary Clinton has got the bond market a little bit spooked," said Thomas di Galoma, a managing director at Seaport Global Securities LLC.

Bond traders are closely watching the polls and early voting results on Election Day, the culmination of a tight presidential race between Mrs. Clinton and Mr. Trump. But the final results aren't expected to come in until late in the evening, as the polls in some of the tossup states, such as Nevada and Colorado, have late closing times.

In recent trade, the yield on the benchmark 10-year U.S. Treasury notes was at 1.860%, up from 1.826% on Monday. Bond yields rise when prices fall.

On Wall Street, a Clinton victory is the baseline scenario for the majority of analysts, which is considered a less risky outcome in terms of maintaining the status quo. Recent economic reports also suggested a continuation of slow but steady economic expansion, supporting the Federal Reserve's case for normalizing monetary policy. And a Clinton win, analysts say, will clear a hurdle for the Fed to raise rates.

The derivatives markets are also respondingto the early results. The odds for a December rate increase grew to 81.1% on Tuesday, up from 71.5% a day earlier, according to Fed-fund futures data from CME Group.

"Our expectation is that the normalization process of interest rates will remain in place," said John Stoltzfus, chief investment strategist at Oppenheimer Asset Management Inc.

Once the election is over, the broad markets are likely to stage "a relief rally," which will be bearish for haven assets such as Treasurys, Mr. Stoltzfus said. Both sides have "grown increasingly desirous and eager to get this thing over and move on," as they are exhausted by the contentiousness of this year's electoral process, he said.

Nonetheless, the short-end of the Treasury curve is moving on its own. The yield on three-month Treasury bills continued to soar in Tuesday's trading, hitting a fresh eight-year high of 0.434%, a reflection of the market's firm belief of a rate increase atthe Fed's December meeting.

The yield is an accumulation of expected overnight rates over the next three months. "You're getting a higher and higher weight on the higher post-Fed meeting rates, as time goes on," said Thomas Simons, a money-market economist in the fixed-income group at Jefferies LLC. The Treasury's recent outsized issuance of short-term papers also contributed to the weakness in the front-end of the curve.

The 10-year Treasury yield started the year at around 2.3%, when investors were expecting as many as four rate increases over the course of 2016. But the U.S. yield tumbled amid concerns about a weakening global economic outlook that have pushed benchmark rates in many countries below zero.

The benchmark 10-year yield dropped to a record low at 1.365% in early July after the U.K's vote to leave the European Union. Bond yields have since been creeping up as central banks began to question the benefits of further monetary easing.

Write to Carolyn Cui at

(END) Dow Jones Newswires

November 08, 2016 12:13 ET (17:13 GMT)

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