Treasurys Pause Following Selloffs

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds edged higher Tuesday as the market took a break from its recent selloff.

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The yield on the benchmark 10-year Treasury note settled at 2.332%, compared with 2.337% Monday.

Yields, which fall when bond prices rise, ticked higher overnight but fell back at the start of the U.S. trading session.

Yields have trended higher in recent weeks due to a variety of factors, including speculation that Federal Reserve Chairwoman Janet Yellen could be replaced next year with someone more inclined to raise interest rates.

Yields have also been supported by the prospect of a tax-cut package, following the release of a Republican plan on taxes last week and movement in Congress to pass a budget blueprint that would allow Republicans to reduce revenues by up to $1.5 trillion over the next decade without votes from Democrats.

A large tax cut for individuals and corporations could weigh on Treasurys in part by boosting economic growth, leading investors to favor riskier assets. It could also stoke inflation, which chips away at the fixed returns of government debt, and expand the budget deficit, forcing the government to sell more bonds to the public at a time when the Fed is also starting to scale back its purchases of Treasurys.

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"A lot of moving parts" have led investors to sell bonds recently, said Stanley Sun, interest-rates strategist at Nomura Securities International in New York.

While inflation remains low, that "has stopped being news," leaving investors to focus on other matters like tax policy and candidates to replace Ms. Yellen, he added.

One question for investors is what type of bonds, from short-term bills to longer-term notes, the Treasury Department plans to sell as the Fed shrinks its balance sheet and Congress considers tax cuts. More information on that front is likely to come on Nov. 1, when the agency makes its quarterly refunding announcement.

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

(END) Dow Jones Newswires

October 03, 2017 16:02 ET (20:02 GMT)