BOND REPORT: Treasury Yields Climb, Stocks Surge After Senate Tax Bill Gains Impetus

By Sunny Oh Features Dow Jones Newswires

10-year Treasury yield nears 2.40%, a key psychological level

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Treasury yields rose on Thursday after Senate Republicans made strides towards passing their tax bill, which is expected to be put to a vote by the end of this week.

What are yields doing?

The 2-year Treasury note yield added 4 basis points to 1.802%, from 1.762% late Wednesday, while the 10-year note yield was up 5 basis points to 2.431%, versus 2.376%. The 30-year bond yield also rose close to 5 basis points to 2.864%, from 2.817%.

Bond prices move in the opposite direction of yields.

What's driving Treasurys?

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The Republican tax bill is nearing a Senate vote as previous holdouts have either signaled their support or opened the door to backing the overhaul if amendments were made. Investors plowed into stocks away from safe assets like Treasurys on heightened expectations that growth-positive tax cuts would be passed. But with the tax cuts expected to bolster already rising deficits, the federal government will need to increase supply, potentially weighing on bond prices.

See: Republican tax plan heads for Senate vote: live updates (http://blogs.marketwatch.com/capitolreport/2017/11/30/republican-tax-plan-heads-for-senate-vote-live-updates/)

The personal consumption expenditure, or PCE, index, which is the Fed's preferred price gauge, rose 0.1% in October (http://www.marketwatch.com/story/consumers-keep-on-spending-in-october-aided-by-rising-incomes-and-low-inflation-2017-11-30). And stripping out food and energy prices, the core index rose 0.2%, matching economists forecasts. The tepid reading was considered enough to keep the central bank on track to hike rates in December, economists said.

Read: October PCE inflation reading 'just enough' to keep Fed moving (http://www.marketwatch.com/story/october-pce-inflation-reading-just-enough-to-keep-fed-moving-2017-11-30)

The central bank has highlighted its uncertainty over whether the recent bout of lackluster inflation readings would prove short-lived. For most investors, the disconnect between tight slack in the economy and middling inflationary pressures shows no sign of ending soon.

What did strategist say?

Daan Struyven, an economist at Goldman Sachs, expected the tax cuts to contribute a rise in the federal debt to GDP ratio from 77% in 2016 to 85% by 2021. "This larger budget deficit and the rising debt-to-GDP ratio have the potential to put upward pressure on long-term interest rates and would also reduce the room to ease fiscal policy in response to an economic downturn," he said.

What else is on investors' radar?

Initial jobless claims fell by 2,000 to 238,000 (http://www.marketwatch.com/story/jobless-claims-fall-slightly-in-thanksgiving-week-layoffs-remain-near-45-year-low-2017-11-30)in the week ending Nov. 25. Economists surveyed by MarketWatch had forecasted claims to hit 240,000.

This week has proven particularly busy for those looking to glean clues on the likelihood of a December rate hike with plenty of Fed officials on the docket. Minneapolis Fed President Neel Kashkari hinted that he may oppose (http://www.marketwatch.com/story/feds-kashkari-suggests-he-may-dissent-again-in-december-2017-11-29)a widely expected December rate hike as inflation was too low for the central bank to "tap the brakes."

Cleveland Fed President Loretta Mester will moderate a panel discussion on "Financial Innovation and Macroprudential Policy." Dallas Fed President Robert Kaplan to take part in a moderated Q&A session in Dallas.

What assets are on the move?

The eurozone consumer price index numbers rose 1.5% year-on-year in November versus 1.4% the prior month. The French 10-year government bond yield fell 3.3 basis point to 0.681%.

(END) Dow Jones Newswires

November 30, 2017 14:41 ET (19:41 GMT)