U.S. Government Bonds Fall After GOP Unveils Tax Plan

By Akane Otani Features Dow Jones Newswires

U.S. government bond prices fell Wednesday ahead of the release of a closely watched Republican tax plan.

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The yield on the benchmark 10-year U.S. Treasury note was recently at 2.310%, according to Tradeweb, compared with 2.229% Tuesday. Yields rise as bond prices fall.

Republican officials are expected later Wednesday to unveil details for a tax overhaul that could call for lowering the corporate tax rate into the low 20% range from the current 35%, a person familiar with the discussions told The Wall Street Journal earlier this week. The plan is also expected to propose lowering individual rates and decreasing the total number of tax brackets.

Hopes for tax cuts has sent U.S. stocks and Treasury yields sharply higher after Election Day, although some analysts are skeptical of how much impact Wednesday's announcement will ultimately have on the market, citing ongoing debate among Republican officials over how they will finance the plan.

Congressional leaders are grappling with whether revenue from economic growth would pay for the plan, and if not, whether they would be willing to eliminate popular tax breaks to help finance the plan.

"Suffice it to say, the proposal leaves plenty of open questions, not least of which is how likely will it be that the Senate embraces the bill, and is there enough support within the rank and file of the GOP to push the reforms through in the House," Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said in a memo to clients.

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Contentious negotiation in Washington could derail Republicans' efforts to push through the tax overhaul, Mr. Lyngen said, adding that he expects Treasury yields to drift lower as details of the plan are released.

Earlier, Treasury prices extended losses after data showed demand for long-lasting U.S. factory goods rose more than economists were expecting in August.

Orders for U.S. durable goods increased a seasonally adjusted 1.7% in August from the prior month, the Commerce Department said, more than the 0.9% economists surveyed by The Wall Street Journal had expected.

The report was the latest to show business investment on the rebound, although some economists have warned that readings for U.S. growth in the third quarter could be a bit bumpier, following damage from several severe hurricanes.

Write to Akane Otani at akane.otani@wsj.com

U.S. government bond prices fell Wednesday after Republicans released a plan to overhaul the tax code that they hope will pump up economic growth.

The yield on the benchmark 10-year U.S. Treasury note settled at 2.309%, compared with 2.229% Tuesday -- its biggest one-day gain since March. Yields rise as bond prices fall.

Republican officials unveiled a tax plan on Wednesday that called for lowering the corporate tax rate to 20% from the current 35%, ending state and local tax deductions for individuals and adding incentives for business investment.

Hopes for tax cuts sent U.S. stocks and Treasury yields sharply higher after Election Day last year, although some analysts are skeptical of how much impact Wednesday's announcement will ultimately have on the market, citing ongoing debate among Republican officials over how they will finance the plan.

"I'd be really stunned to see a big move, even if we pass some form of fiscal policy," said Karissa McDonough, fixed-income strategist at People's United Wealth Management.

Congressional leaders are still debating the contours of the plan, including whether revenue from economic growth will pay for tax cuts and if not, whether they would be willing to eliminate popular tax breaks.

Contentious negotiation in Washington could derail Republicans' efforts to push through the tax overhaul, which could strengthen demand for bonds, Ms. McDonough said. On the other hand, any signs of broader, bipartisan support for the tax overhaul could send yields higher, she added.

Earlier, Treasury prices extended losses after data showed demand for long-lasting U.S. factory goods rose faster than economists expected in August.

Orders for U.S. durable goods increased a seasonally adjusted 1.7% in August from the prior month, the Commerce Department said, more than the 0.9% economists surveyed by The Wall Street Journal had expected.

The report was the latest to show the U.S. economy on solid footing, although some analysts have warned that readings for U.S. growth in the third quarter could be a bit bumpier, following damage from severe hurricanes.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

September 27, 2017 16:26 ET (20:26 GMT)