You're correct. "Bated" is the right word:
The correct spelling is actually bated breath but it’s so common these days to see it written as baited breath that there’s every chance it will soon become the usual form, to the disgust of conservative speakers and the confusion of dictionary writers. Examples in newspapers and magazines are legion; this one appeared in the Daily Mirror on 12 April 2003: “She hasn’t responded yet but Michael is waiting with baited breath”.
It’s easy to mock, but there’s a real problem here. Bated and baited sound the same and we no longer use bated (let alone the verb to bate), outside this one set phrase, which has become an idiom. Confusion is almost inevitable. Bated here is a contraction of abated through loss of the first vowel (a process called aphesis); it has the meaning “reduced, lessened, lowered in force”. So bated breath refers to a state in which you almost stop breathing through terror, awe, extreme anticipation, or anxiety.
http://www.quinion.com/words/qa/qa-bai1.htm