U.S. Government Debt Fluctuates as Investors Await Signs on Taxes and Inflation

By Daniel Kruger Features Dow Jones Newswires

U.S. government bonds fluctuated as investors assessed the status of negotiations on the Republican tax overhaul plan in Congress and awaited inflation data due later this week.

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The benchmark 10-year Treasury yield fell to a recent 2.393%, according to Tradeweb, from 2.397% Friday. Yields fall as bond prices rise.

The impact for economic growth and the budget deficit from competing House and Senate plans is unclear, as are the odds of passage, creating uncertainty for bond investors. Senate Republicans' proposal to overhaul the tax code diverges in key ways from a plan that advanced through a House committee.

Senators would delay a corporate tax rate cut until 2019, forgo estate tax repeal and eliminate the entire state and local tax deduction. Compared with the House bill, those changes and others freed up hundreds of billions of dollars that could enable senators to avoid tough and politically painful choices.

Treasury Secretary Steven Mnuchin said Friday that he expects the House and Senate to agree on a compromise tax bill that President Donald Trump could sign into law by the end of the year.

"We thought there would be volatility around tax reform," Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management. "We're starting to see that."

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Bond investors are also trying to grasp the potential impact from inflation data later this week. The Labor Department will release information on producer prices Tuesday and consumer prices Wednesday. The consensus estimate for the consumer-price index calls for 2% headline inflation and 1.7% excluding more volatile food and energy costs.

The Federal Reserve has repeatedly fallen short of its 2% inflation target on its preferred measure, personal-consumption expenditures. Investors will look to the data to assess whether it might force the central bank to shift course under the leadership of President Trump's nominee, Jerome Powell. Fed officials said in September that they have penciled in a rate increase for December, and three more for 2018.

U.S. government bonds edged lower as investors assessed the status of negotiations on the Republican tax overhaul plan in Congress and awaited inflation data due later this week.

The benchmark 10-year Treasury yield rose to 2.400%, from 2.397% Friday. Yields rise as bond prices fall.

Bond yields have gained in recent sessions amid uncertainty created by the possible impact of Republican House and Senate tax overhaul plans on economic growth and the budget deficits.

Adding to the confusion, Senate Republicans' proposal to overhaul the tax code diverges in key ways from a plan that advanced through a House committee. Senators would delay a corporate tax rate cut until 2019, forgo estate tax repeal and eliminate the entire state and local tax deduction. Compared with the House bill, those changes and others freed up hundreds of billions of dollars that could enable senators to avoid tough and politically painful choices.

Treasury Secretary Steven Mnuchin said Friday that he expects the House and Senate to agree on a compromise tax bill that President Donald Trump could sign into law by the end of the year.

"We thought there would be volatility around tax reform," Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management. "We're starting to see that."

Bond investors are also trying to grasp the potential impact from inflation data later this week. The Labor Department will release information on producer prices Tuesday and consumer prices Wednesday. The consensus estimate for the consumer-price index calls for 2% headline inflation and 1.7% excluding more volatile food and energy costs.

The Federal Reserve has repeatedly fallen short of its 2% inflation target on its preferred measure, personal-consumption expenditures. Investors will look to the data to assess whether it might force the central bank to shift course under the leadership of President Trump's nominee to lead the central bank, Jerome Powell. Fed officials said in September that they have penciled in a rate increase for December, and three more for 2018.

(END) Dow Jones Newswires

November 13, 2017 16:25 ET (21:25 GMT)