BOND REPORT: 10-year Treasury Yield Posts Biggest Jump In Five Weeks On Hopes For Tax Overhaul

By Mark DeCambre, MarketWatch , Sunny Oh Features Dow Jones Newswires

Benchmark 10-year yield nears 2.40%

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Treasury prices tumbled Friday, pushing yields firmly higher, to cap a weeklong selloff in government paper as the Senate passed a budget resolution that helps clear the way for tax cuts.

Earlier in the week, Fed Chairwoman Janet Yellen reaffirmed her call to continue raising interest rates (http://www.marketwatch.com/story/yellen-says-fed-should-be-wary-of-raising-rates-too-gradually-2017-09-26) as speculation over her potential successor gained traction.

Where are Treasury yields?

The benchmark 10-year Treasury yield was up 6 basis points to 2.381%, contributing to a weeklong climb of 10 basis points, the largest five-day jump since Sep. 15.

The 2-year Treasury note yield was up 3 basis points to 1.580%, a rise of 8 basis points for the week, the largest five-day rise since Sep. 15.

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Meanwhile, the yield on the 30-year Treasury bond , known as the long bond, was up 7 basis points to 2.893%, which drove most of the weeklong rise of 8 basis points.

The 5-year Treasury yield broke through 2.00%, a key psychological barrier, for the first time since March. Bond prices move inversely to yields.

What's driving markets?

The Senate late Thursday passed a budget plan, helping clear the way for a package of tax cuts. Key House and Senate lawmakers privately hammered out a compromise Thursday that would likely eliminate the need for a conference committee, buying Republicans at least a week to do more tax work. Tax cuts have been viewed as one important leg to a slate of pro-business legislations championed by President Donald Trump during his 2016 presidential campaign.

Also read:What's next for a tax overhaul after the Senate passed its budget (http://www.marketwatch.com/story/whats-next-for-a-tax-overhaul-after-the-senate-passed-its-budget-2017-10-20)

Trump's election win nine months ago jolted yields and stock values higher on the belief that those reforms would come to passage soon, against the backdrop of a Republican-led Congress. But there have been a host of stumbles along the way that have diminished expectations.

Yields also traveled higher amid speculation that the next Fed boss could have more hawkish leaning (http://www.marketwatch.com/story/heres-how-bond-traders-are-preparing-for-trumps-fed-chief-pick-2017-10-17)s, if Trump does not nominate Yellen.

What are market participants saying?

"Markets are anticipating a path forward for tax reform/cuts which, combined with an apparent narrowing of the Fed Chair search to Powell (http://www.marketwatch.com/story/trump-reportedly-leaning-toward-powell-for-fed-chairman-2017-10-19)and Taylor, has pushed the 2-year note yield to its cycle high," said Robert Sinche, global strategist at Amherst Pierpont Securities.

If tax cuts widen the federal budget deficit, it could exert further pressure on the bond market as the Treasury Department would have to issue more debt to make up for the shortfall, said Michael Collins, a money manager at PGIM Fixed Income. An influx of new supply could drown out demand, pushing prices lower and yields higher. The U.S.'s budget deficit hit $666 billion in fiscal 2017 (http://www.marketwatch.com/story/us-ends-fiscal-2017-with-666-billion-budget-deficit-2017-10-20), the largest since 2013.

Read:'Trump trade has been reignited'--analysts on what the Senate budget vote means for investors (http://www.marketwatch.com/story/the-trump-trade-has-been-reignited-analysts-on-what-the-senate-budget-vote-means-for-investors-2017-10-20)

What else is on investors' radar?

A reading on existing home sales rose 0.7% in September to an annual rate of 5.39 million (http://www.marketwatch.com/story/existing-home-sales-eke-out-small-gain-in-september-2017-10-20). Economists forecast a reading of 5.3 million sales.

Yellen is set to give a speech at 7:30 p.m. Eastern.

What are other assets doing?

Stocks rose, partly in reaction to tax-cut expectations. The Dow Jones Industrial Average , the S&P 500 index , the Nasdaq Composite Index rallied to fresh all-time highs on Friday (http://www.marketwatch.com/story/dow-sp-shape-up-for-more-records-after-senate-clears-big-hurdle-to-tax-reform-2017-10-20). The U.S. dollar also rose on the hope of Wall Street-friendly policies (http://www.marketwatch.com/story/dollar-storms-higher-on-revived-hopes-for-tax-cuts-2017-10-20), with the ICE U.S. Dollar up 0.6% at 93.69.

Meanwhile, the yield on the 10-year German bond , known as the bund, jumped 5 basis points to 0.45%. The yield of Spanish 10-year note , which has been shaken by political drama (http://www.marketwatch.com/story/catalonia-to-declare-independence-if-spain-cancels-autonomy-report-2017-10-18)between the Spanish government and Catalonia's pursuit of independence, rose 4 basis points to 1.66%. Analysts worry that events in Spain may undermine the territorial integrity of the European Union.

(END) Dow Jones Newswires

October 20, 2017 16:28 ET (20:28 GMT)