Treasury prices gave back some of their early gains, still leaving yields lower, on Friday after growing optimism that the Senate tax bill was nearing passage.
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The push to implement a tax overhaul helped to shift investor's focus away from a news report saying former national security adviser Michael Flynn, who took a plea deal in the Russian meddling case, will testify about President Donald Trump.
What are yields doing?
The 10-year benchmark note yield shed 5.4 basis points to 2.363%, but was nonetheless up 2.1 basis points this week. The 2-year Treasury note yieldwas down a single basis point to 1.778%, but up 2.6 basis points this week.
The 30-year bond yield fell 7.5 basis points to 2.72%, but was mostly unchanged in the past five days.
Bond prices move in the opposite direction of yields.
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What's driving Treasurys?
ABC News reported that Flynn will testify about Trump as part of a larger probe conducted by Special Counsel Robert Muller into the Trump election campaign's ties with Moscow. Flynn had pleaded guilty on Friday to making false statements to the FBI (http://www.marketwatch.com/story/michael-flynn-charged-with-lying-to-fbi-about-russian-ambassador-conversations-2017-12-01)about his contact with Russia.
Analysts said the political fallout is prompting investors to take risk off the table as they see what Flynn's testimony spells for Trump's pro-growth agenda. Market participants switched out of stocks (http://www.marketwatch.com/story/us-stocks-turn-lower-following-reports-flynn-will-testify-about-trump-2017-12-01)into assets perceived as safe, like bonds.
See: Former Trump national-security adviser Michael Flynn pleads guilty to lying to FBI (http://www.marketwatch.com/story/former-trump-national-security-adviser-michael-flynn-pleads-guilty-to-lying-to-fbi-2017-12-01)
Senate Majority Leader Mitch McConnell said Republicans had the votes to pass the Senate tax bill, adding that a final vote will arrive at the floor "later today." A deficit-widening tax bill will push the Treasury Department to increase the size of their debt auctions, which could be bearish for government paper.
Read: Here's what's next for the Senate's tax bill (http://www.marketwatch.com/story/heres-whats-next-for-the-senates-tax-bill-2017-11-30)
What did market participants say?
"I think that it's so hard to see how the [Russia investigation] evolves. But given the risk rally we've seen this week, we're going risk-off. If you look at the week itself, we're still probably higher on stocks, certainly the [ABC news report] is giving investors much to digest," said Marvin Loh, senior fixed-income strategist at BNY Mellon.
Even after the knee-jerk plunge in stocks, the S&P 500 and the Dow Jones Industrial Average is still higher overall for the week.
What else is on investors' radar?
The Institute for Supply Management said November's manufacturing composite index, a measure of nationwide industrial activity, fell to a nonetheless strong reading of 58.2% (http://www.marketwatch.com/story/us-manufacturers-roar-ahead-ism-shows-2017-12-01). Economists surveyed by MarketWatch had forecast 58.
New York Fed President William Dudley said introducing fiscal stimulus amid strong growth and low unemployment was "probably not the best time," (http://www.marketwatch.com/story/feds-dudley-sees-no-need-for-fiscal-stimulus-at-time-of-solid-growth-2017-12-01) he said. St. Louis Fed President Jim Bullard said the yield curve, a line tracing Treasury maturities against their yields, was at risk of inverting (http://www.marketwatch.com/story/feds-bullard-warns-yield-curve-could-invert-next-year-2017-12-01) next year, considered a precursor to a recession.
(END) Dow Jones Newswires
December 01, 2017 15:52 ET (20:52 GMT)