By Wes Goodman Nov. 5 (Bloomberg) -- Treasuries fell as Barack Obama won the U.S. presidential race and his Democratic party picked up seats in Congress, making it easier to push through his plans to revive the shrinking U.S. economy. Notes due in 2010 dropped the most in almost two weeks as a gain in global stocks and a decline in money-market rates increased demand for higher-yielding assets. Treasuries also slid before the U.S. announces sales of debt for this quarter to pay for a $700 billion bank-rescue package today. ``The Democratic party will dominate the government,'' said Hidehiko Maejima, international bond strategist in Tokyo at BNP Paribas Securities Japan Ltd., a unit of France's largest bank. ``Passing bills will be much smoother than before. This is positive for the economy. Yields will rise.'' Two-year note yields climbed 7 basis points to 1.44 percent as of 2:52 p.m. in Tokyo, according to BGCantor Market Data. The price of the 1.5 percent security maturing in October 2010 fell 4/32, or $1.25 per $1,000 face amount, to 100 4/32. Ten-year yields advanced 5 basis points to 3.77 percent. A basis point is 0.01 percentage point. Yields may push higher until the government issues its October employment report on Nov. 7, Maejima said. The U.S. probably lost 200,000 jobs during the month, according to the median forecast in a Bloomberg News survey of economists. Democrats captured at least seven U.S. House seats across the country as the party expanded on the majority it gained two years ago. Obama comes to office promising to create 2 million jobs and pursue middle-class tax cuts. Obama on Oct. 13 proposed easing access to retirement accounts and imposing a 90-day moratorium on foreclosures for some homeowners. Swaps, Money Markets The MSCI Asia Pacific Index of regional shares rose 4.3 percent, a third straight gain. Rates that banks charge each other for loans and the cost of protecting corporate bonds from default also declined. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed to 2.23 percentage points from 3.82 percentage points a month ago. The Markit iTraxx Japan index of credit-default swaps fell 15 basis points to 2.05 percentage points, according to Morgan Stanley. The swaps pay the buyer face value in exchange for the underlying securities, or cash equivalent, if a borrower fails to adhere to its debt agreements. ``The worst is over,'' following a meltdown in the financial markets last month, said Kazuaki Oh'e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., part of the investment division at Canada's fifth-biggest bank. ``When stocks are higher, bonds are lower. Supply is another big, big problem.'' Investors should sell 10-year notes at yields of 3.7 percent and buy at 4 percent, Oh'e said. Treasury Sales U.S. borrowing needs will rise to $550 billion in the three months to Dec. 31, compared with the $142 billion predicted in July, according to the Treasury Department. At its quarterly refunding announcement today, the Treasury will probably say it plans to sell $25 billion in three-year notes, $20 billion in 10-year notes and $8 billion in 30-year bonds next week, according to a survey of economists by Bloomberg. Yields on Treasuries due in 2010 were near the lowest in almost two weeks as traders added to bets for the Federal Reserve to trim borrowing costs at its next meeting on Dec. 16. ``Everybody wants to buy two-year notes now,'' said Hiroyuki Bando, chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ Trust & Banking Corp., part of Japan's biggest bank. ``The Fed is going to cut interest rates further.'' The yield may fall to 1 percent by year-end, Bando said. Fed Odds Rise Futures on the Chicago Board of Trade show an 81 percent chance the Fed will reduce its target for overnight bank loans, now 1 percent, by 50 basis points next month, as of late yesterday in New York. The odds rose from 55 percent the day before. The central bank lowered borrowing costs twice last month to support the shrinking U.S. economy. Rising unemployment and slumping property values are forcing Americans to cut back on purchases of everything from home electronics to restaurant meals. Circuit City Stores Inc., the second-biggest electronics retailer, said this week it will close 155 American stores, reducing the company's workforce by 17 percent to conserve cash. Service industries in the U.S. probably shrank in October for the sixth time in 10 months. The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the economy, dropped to 47 from 50.2 in September, according to the median estimate of forecasts in a Bloomberg News survey before the report at 10 a.m. New York time. The Treasury may also announce today that it is considering selling seven-year bonds, Joe LaVorgna and Carl Riccadonna, economists at Deutsche Bank Securities Inc. in New York, wrote in a report yesterday. ``Fixed-income investors are faced with a tremendous amount of supply coming their way,'' Jane Caron, chief economic strategist in Burlington, Vermont, at Dwight Asset Management Co., which oversees $70 billion, said yesterday. ``Increased supply could lead to lower prices in the very near term.'' To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

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