U.S. Government Bond Prices Decline After Brief Rally

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds edged lower Monday as investors were quick to book profits following an overnight rally.

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The yield on the benchmark 10-year Treasury note settled at 2.370%, compared with 2.352% Friday.

Yields, which fall when bond prices rise, declined overnight after the small, pro-business Free Democratic Party broke off talks to form a coalition government in Germany.

The rally, however, was short-lived, as investors determined that "the German economy is strong enough to withstand this little hiccup," said John Canavan, market analyst at Stone and McCarthy Research Associates.

This could be a quiet week in the Treasurys market, according to analysts. The market is closed Thursday for Thanksgiving, and the most notable economic release is a report on durable goods orders Wednesday.

One factor that could upset the calm is investors' shifting appetite for riskier assets.

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After holding strong for most of the year, demand for assets such as stocks and junk-rated corporate bonds has wavered in recent weeks, offering support for Treasurys, which tend to benefit when investors adopt safer strategies. Major U.S. stock indexes were on track for gains on Monday.

Another wild card involves Congress. After the House passed a sweeping tax overhaul bill last week, the focus is now on the Senate, where Republicans can afford few defections as they consider similar legislation.

Treasury yields could rise if the House or Senate bill became law, in part because each would boost the federal budget deficit, requiring the government to issue more bonds. A change in tax laws could potentially spur some economic growth, causing investors to favor riskier assets. And it could boost inflation, which is a main threat to government bonds because it chips away at the purchasing power of their fixed returns.

The Senate is expected to vote on tax legislation after Thanksgiving.

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

(END) Dow Jones Newswires

November 20, 2017 15:39 ET (20:39 GMT)