U.S. Government Bonds Fall On Tax Plan Progress

By Daniel Kruger Features Dow Jones Newswires

U.S. government bonds fell after the House of Representatives passed a budget resolution giving lawmakers leeway to cut taxes.

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The yield on the benchmark 10-year U.S. Treasury note rose for the third consecutive day to 2.452% from 2.444% Wednesday. Bond yields rise as prices fall.

House Republicans now turn to the task of writing, amending and passing a tax bill, which they say will happen by Thanksgiving. The goal is to boost growth by lowering tax rates for individuals, corporations and other businesses, while curbing enough tax breaks so that the measure doesn't raise the projected federal deficit by a total of more than $1.5 trillion over the next decade.

Some investors expect that tax reform will stimulate growth and inflation, while also increasing the budget deficit and the supply of Treasury debt.

U.S. government bonds had fluctuated earlier after the European Central Bank said it plans to reduce its purchases to EUR30 billion a month starting in January and running through September, and intends to hold interest rates at their current negative 0.4% for some time after the purchases end.

Central bank president Mario Draghi had sought to avoid sparking widespread selling of bonds by signalling to investors the bank would act judiciously in paring stimulus. German bunds gained on the move, causing sovereign yields between the countries to widen.

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The 10-year German bund yield fell to 0.418% from 0.483% Wednesday. The gap between the U.S. and German yields exceeded 2 percentage points for the first time since April, which could encourage foreign investors to continue to seek out higher yields in the U.S. even as ECB stimulus diminishes.

"It's the story of a dovish ECB and the continued optimism on data and the political process in the U.S.," said Shyam Rajan, head of U.S. interest-rate strategy at Bank of America Merrill Lynch.

(END) Dow Jones Newswires

October 26, 2017 16:50 ET (20:50 GMT)