U.S. Bonds Steady as ECB Keeps Rate Policy Unchanged

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds were steady Thursday as the European Central Bank kept its monetary policies unchanged and investors moved on after learning the broad outlines of President Donald Trump's tax overhaul plans.

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In recent trading, the yield on benchmark 10-year Treasury note was 2.309%, according to Tradeweb, compared with 2.312% Wednesday. Yields fall when bond prices rise.

The ECB, at the conclusion of its latest policy meeting, said its main interest rate, the rate charged on regular loans, would remain at 0%, while the rate on overnight deposits would stay at minus 0.4%. It also maintained its bond-buying program at EUR60 billion ($65.34 billion) a month.

Those decisions matched investors' expectations as did comments from ECB President Mario Draghi that a "very substantial amount of monetary accommodation" was still needed to support the economy even as "downside risks have further diminished."

The ECB's asset purchases have been one factor that have depressed bond yields over the past two years, making bonds more scarce and sending European investors into the U.S. market in search of higher-yielding debt. The ECB is expected to preserve its bond-buying program through the end of the year before gradually tapering its purchases next year.

Meanwhile, any lingering impact from Wednesday's tax announcement in the U.S. seemed to be gone by Thursday morning.

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Yields fell modestly Wednesday afternoon after administration officials formally announced that they would seek to slash the corporate tax rate to 15% from 35%, while also cutting taxes for individuals. Though the promise of tax cuts helped buoy yields after last November's election, many investors and analysts found the administration's plan unconvincing, given its lack of technical details or clear path to being passed by Congress.

Expansionary fiscal policies, such as tax cuts, could potentially boost economic growth, leading to higher inflation and interest rates that would diminish the value of outstanding government debt.

Over all, the bond market registered a "pretty muted response to the Trump administration's outline tax proposal," which "still needs a lot of details filled in," said Timothy High, senior U.S. interest-rate strategist at BNP Paribas.

After a period of volatility, the yield on the 10-year Treasury note now stands at the bottom end of a 2.3%-2.6% range that has held for much of the year. The yield broke out of that range last week, falling to a month-low of 2.177%. But it rebounded this week, partly due to the results of Sunday's first-round presidential vote in France, which established the centrist, pro-European Union candidate Emmanuel Macron as the clear favorite heading into the final round of voting on May 7.

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

(END) Dow Jones Newswires

April 27, 2017 10:49 ET (14:49 GMT)