U.S. Government Bonds Strengthen After Tax Plan Lacks Specifics

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds strengthened Wednesday after a tax proposal from President Donald Trump tax cuts turned out to be lacking in details, boosting demand for assets that would be hurt by fiscal stimulus.

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The yield on the 10-year Treasury note settled at 2.313%, compared with 2.330% Tuesday. Yields rise as bond prices fall.

Mr. Trump on Wednesday called for slashing the corporate tax rate to 15% from 35% along with major changes to the individual tax system. The plan, though, offered few specifics beyond what had already been leaked to the press in recent days, feeding into skepticism among investors that Congress can pass a major tax package.

The decline in Treasury yields reflected "a mini flight to quality on the lack of details" in Mr. Trump's proposal, though the market's reaction was still "relatively muted," said Stanley Sun, interest-rates strategist at Nomura Securities International in New York.

The prospect of a tax-code overhaul, including a large reduction in the corporate tax rate, was a major impetus behind the so-called Trump trade that swept financial markets after last November's election.

Betting that expansionary fiscal policies could boost growth and inflation, investors bought riskier assets such as stocks and commodities and sold safe-haven assets including bonds, sending the yield on the 10-year note as high as 2.6% in mid-December from 1.867% on Election Day.

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Since then, the Trump trade has sometimes shown signs of fading. After reaching 2.6% again in March, the 10-year yield fell to a five-month low of 2.177% last week, reflecting lowered expectations for fiscal stimulus, as well as a tight presidential race in France and heightened geopolitical tensions.

This week, investors have regained some of their risk-appetite, pushing yields higher. Following a first-round victory on Sunday, the centrist French presidential candidate Emmanuel Macron has emerged as a clear favorite heading into the final round of voting on May 7, dimming concerns that France could elect an anti-European Union candidate who would threaten the future of the eurozone.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

April 26, 2017 15:46 ET (19:46 GMT)