BOND REPORT: Treasury Yields Jump As Senate Passes Budget Bill, Juices Risk Appetite

By Mark DeCambre, MarketWatch Features Dow Jones Newswires

Benchmark 10-year yield taps 2.365%

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Treasury prices tumbled early Friday, pushing yields firmly higher, as the Senate passed a budget bill late Thursday that was seen as a crucial bridge to reforming the U.S. tax code--delivering a further jolt to appetite for assets perceived as risky and away from the safety of government bonds.

Reports that President Donald Trump was leaning toward Fed. Gov. Jerome Powell as the next Federal Reserve chief (http://www.marketwatch.com/story/trump-reportedly-leaning-toward-powell-for-fed-chairman-2017-10-19) also lifted yields. Powell is seen as a candidate whose views align with perceived policy dove and current Fed chairwoman Janet Yellen, implying that he may be less aggressive at tightening monetary policy.

Where are Treasury yields?

The benchmark 10-year Treasury yield was at 2.365%, compared with 2.323% late Thursday in New York. The 2-year Treasury note yield was at 1.564%, versus 1.555% in the prior session. Meanwhile, the yield on the 30-year Treasury bond , known as the long bond, was at 2.874%, compared with 2.829% late Thursday in New York.

What's driving markets?

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A 51-49 vote, with passage requiring just 50 votes in the Senate (https://www.wsj.com/articles/gop-gears-up-for-tax-overhaul-push-1508491802), clears the way for broader passage of the GOP-led tax overhaul plan. 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. Reform to the tax code has been viewed as one important leg to a slate of pro-business legislations championed by Trump during his 2016 presidential campaign.

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.

Meanwhile, Politico reported Thursday (http://www.marketwatch.com/story/trump-reportedly-leaning-toward-powell-for-fed-chairman-2017-10-19) that Trump is leaning toward Powell to replace Chairwoman Janet Yellen when her term as Fed boss ends in February. Fixed-income traders are viewing Powell as a drag on Treasury prices, pushing yields higher, because of his similarly dovish stance compared with Yellen.

What are strategist saying?

"The passing of the budget resolution through the Senate late on Thursday is likely helping lift sentiment further today, with final approval in the House being a big step towards Donald Trump's long awaited tax reform being enacted," said Craig Erlam, senior market analyst, OANDA.

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 data are ahead?

A reading on existing home sales for September is due at 10 a.m. Eastern. Economists forecast a reading of 5.3 million sales.

What are other assets doing?

Stocks across the globe are surging with hope of a tax cuts in the No. economy in the world helping to foster risk appetite. The Dow Jones Industrial Average , the S&P 500 index , the Nasdaq Composite Index looked set to rally 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 tipped higher on the hope of Wall Street-friendly policies, with the ICE U.S. Dollar up 0.1% at 93.39.

Meanwhile, the yield on the 10-year German bond , known as the bund, was at 0.480%, versus 0.467% on Thursday. The yield of Spanish 10-year note , which has been shaken by political drama between the Spanish government and Catalonia's pursuit of independence, was at 1.627%, compared with 1.608% in the before. Events in Spain are seen as potentially undermining the integrity of the European Union's trade bloc.

(END) Dow Jones Newswires

October 20, 2017 08:07 ET (12:07 GMT)