TREASURIES-Yield curve flatter on coronavirus, election concerns

By Ross Kerber Oct 26 (Reuters) - Longer-term U.S. Treasury yields fell on Monday and left the yield curve flatter as investors worried about a fast-rising case count in the COVID-19 pandemic and sized up a complicated battle for control of the U.S. Senate. The benchmark 10-year yield was down 2.7 basis points in morning trading at 0.8144%, well below its four-month high reached on Friday. New infections touched record levels in the United States recently, with El Paso, Texas, asking citizens to stay at home for the next two weeks, while in Europe, Italy and Spain imposed new restrictions. Traders now worry about additional lockdowns in the face of the pandemic that would slow economies, a story the U.S. Treasury market seemed to ignore for much of October, said Jim Vogel, interest rate strategist for FHN Financial. He said investors also were taking note of the tight races that make it hard to predict which party will control the U.S. Senate in next month's elections and holding down Treasury yields. "There's enough uncertainty with regards to how the Senate elections come out, it's easier to wait rather than sell Treasuries on the expectation of a certain outcome," Vogel said. Democratic control, coupled with a predicted win for the party's presidential candidate Joe Biden, is generally expected to send markets higher on the expectation of an end to Washington gridlock, he said. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 66 basis points, about 3 basis points lower than Friday's close. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down less than a basis point at 0.1514% in morning trading. October 26 Monday 9:13AM New York / 1313 GMT Price Price Current Net Yield % Change (bps) Three-month bills 0.0925 0.0938 0.000 Six-month bills 0.1125 0.1141 0.000 Two-year note 99-243/256 0.1514 -0.004 Three-year note 99-202/256 0.1963 -0.006 Five-year note 99-122/256 0.3573 -0.013 Seven-year note 98-148/256 0.5848 -0.018 10-year note 98-56/256 0.8144 -0.027 20-year bond 95-188/256 1.3717 -0.037 30-year bond 94-128/256 1.608 -0.038 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.25 0.00 spread U.S. 3-year dollar swap 7.75 0.00 spread U.S. 5-year dollar swap 6.50 -0.25 spread U.S. 10-year dollar swap 2.75 0.25 spread U.S. 30-year dollar swap -34.00 0.50 spread (Reporting by Ross Kerber in Boston Editing by Nick Zieminski)