Bonds rally on election day

NEW YORK (CNNMoney.com) -- Treasury prices rallied Tuesday as investors bet that a change in control in Congress after the midterm elections could lead to greater fiscal discipline in Washington.

If the Democrats take control of the House, as expected, and possibly the Senate, which is less of a sure bet, that could make it harder for Republicans to cut taxes and Democrats to raise spending - the so-called gridlock that some experts say leads to less upward pressure on the federal budget deficit.

The bond market typically reacts well to more fiscal discipline since a lower budget deficit means the government has to sell fewer bonds to finance the deficit, which in turn helps support bond prices.

The benchmark 10-year Treasury jumped 11/32, or $3.44 on a $1,000 note, to yield 4.65 percent, down from 4.70 percent late Monday. The 30-year note surged 16/32, or $5 on a $1,000 note, to yield 4.75 percent, down from 4.79 percent in the previous session. Bond prices and yields move in opposite directions.

The five-year note moved up 7/32 to yield 4.62 percent, while the two-year note ticked up 3/32 for a yield of 4.77 percent.

Also supporting bonds: poor results from home builders which bolstered the view that the housing downturn will continue to weaken economic growth and force the Federal Reserve to cut interest rates.

Toll Brothers Inc. (Charts), a luxury home builder, issued a profit warning and Beazer Homes USA Inc. (Charts), one of the largest U.S. builders of single family homes, said quarterly earnings fell 44 percent.

Shares of Technical Olympic USA (Charts) plunged after the home builder disputed a demand for payment and KB Home (Charts) received a bond default notice because it has not filed its quarterly earnings report. The results filing was delayed by issues related to options accounting.

"Nothing gets the bond market going like bad news from the housing sector," Tony Crescenzi, chief bond market strategist with Miller Tabak & Co., told Reuters.

In currency trading, the dollar slipped versus the euro and the Japanese yen.

The euro bought $1.2769, up from $1.2722 late Monday, while the dollar bought ¥117.71, down from ¥118.30 in the previous session.

-- from staff and wire reports

Wall St., if the Democrats win