U.S. Government Bonds Hold Steady

By Daniel Kruger Features Dow Jones Newswires

U.S. government bonds held steady Thursday as investors grappled with the implications of the Republican framework to overhaul the tax code, which some said could spur growth and lead to larger budget deficits in the future.

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The yield on the benchmark 10-year Treasury note settled at 2.309%, matching Wednesday's close. Yields rise when bond prices fall.

The plan unveiled by party leaders Wednesday would lower corporate tax rates, boosting corporate earnings and making stocks more attractive, some analysts said. The bill would also lower rates for many individuals, which proponents said would lead to more spending, increasing the pace of economic expansion. That growth would lead to higher tax revenues, making up for the shortfall caused by the cuts, Republicans said.

"Any time you have tax reform that depends on growth to balance the budget," bond investors become skeptical, said Jim Vogel, head of interest-rate strategy at FTN Financial in Memphis, Tennessee. "This could have budget-busting implications for Treasury supply over the next couple of years."

Analysts noted that tax reform is a complicated subject and that the plan will face an intensive negotiating process. They also cautioned that the administration has struggled to pass major legislative proposals, and that this framework could face opposition similar to that faced by the effort to overhaul health care.

Yet some investors said the upward momentum in yields could persist for several weeks, as the debate over the plan increases the market's understanding about how it impacts the budget and the economy.

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The 10-year yield has traded in narrow range since March, as inflation has remained muted and fiscal policy proposals that were expected to spur growth have stalled.

(END) Dow Jones Newswires

September 28, 2017 16:08 ET (20:08 GMT)