U.S. Government Bonds Fall on Tax-Bill Prospects, Strong Data

By Daniel Kruger Features Dow Jones Newswires

U.S. government-bond prices fell after signs that Senate Republicans are moving closer to passing a tax overhaul.

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The yield on the benchmark 10-year U.S. Treasury note climbed to 2.417% from 2.376% Wednesday, the highest closing level since Oct. 27. Bond yields have risen for three consecutive months. Yields rise as prices fall.

Bonds weakened and stocks gained as the bill's prospects improved in recent sessions and economic data boosted hopes for rising growth and inflation. Some investors and analysts expect tax cuts to lead the Federal Reserve to consider accelerating its timetable for raising interest rates, and several said the overhaul could increase the deficit, leading to new bond issuance.

The severity of Thursday's move, the biggest one-day yield gain in almost three weeks, suggests that investors had remained skeptical about the tax bill's prospects after repeated efforts to overhaul health care, some analysts said.

"Obviously, a lot of people hadn't factored in passage of the tax plan," said Thomas Roth, managing director in the rates trading group at MUFG Securities Americas Inc. "It's going to move the needle on how the Fed has to react."

Earlier Thursday, yields climbed after Commerce Department data showed growth in spending and household incomes. The price index for personal-consumption expenditures -- the Fed's preferred inflation gauge -- rose 0.1% in October, the smallest gain since July. Prices rose 1.6% in October from a year before, holding below the central bank's 2% target for an eighth consecutive month.

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Many investors expect the Fed to raise rates in December, despite softness in inflation. The Fed forecast in September that it would raise rates once more this year and three more times in 2018. The Fed will update its projections for monetary policy and its estimates for economic growth at the conclusion of its two-day meeting on Dec. 13.

Write to Daniel Kruger at daniel.kruger@wsj.com

(END) Dow Jones Newswires

November 30, 2017 18:36 ET (23:36 GMT)