U.S. Government Bond Yields Rise on Tax Plan Progress

By Daniel Kruger Features Dow Jones Newswires

U.S. government bonds weakened Monday as investors analyzed the potential effect of the Republican effort to revamp taxes.

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The benchmark Treasury 10-year note yield rose to 2.390%, according to Tradeweb, from 2.363% Friday. Bond yields rise as prices fall.

The Senate passed revisions to the U.S. tax code Saturday after Republicans overcame internal divisions, moving one step closer to pushing through $1.4 trillion in tax cuts. The House and Senate still need to reconcile competing versions of the tax plan, something GOP leaders hope to do by Christmas.

Investors sold bonds as stock climbed, with some analysts and investors saying the lower corporate tax rates could lift company earnings and boost growth, adding to the appeal of riskier assets.

Some investors say that the tax overhaul could help push wages higher, fueling inflation, which erodes the purchasing power of bonds' fixed payments. Analysts also expect the overhaul to require additional government borrowing, which could push yields higher as the supply of bonds increases.

The Senate vote increases the probability that some form of the legislation passes, which "has been good for risky assets," said Donald Ellenberger, head of multisector strategies at Federated Investors. The movement into stocks and the expectations for an increase in borrowing "should result in higher yields."

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Many investors have said that passage of a tax cut plan could make the Federal Reserve more likely to increase the pace of its projected interest rate increases. Central bank officials at the Fed's September meeting forecast that they would raise interest rates once more this year and three times in 2018.

Jerome Powell, President Donald Trump's nominee to replace Janet Yellen as the head the Fed, signaled in testimony before the Senate last week that the bank is likely to raise rates when it meets next week.

Mr. Trump has also nominated Marvin Goodfriend, a former Federal Reserve economist and current Carnegie Mellon University professor, for a spot on the central bank's board of governors. Mr. Goodfriend has argued the importance of the central bank's willingness to raise interest rates to prevent inflation from taking root.

U.S. government bonds weakened Monday as investors analyzed the potential effect of the Republican effort to revamp taxes.

The yield on the benchmark 10-year U.S. Treasury note rose for the fourth time in five days to 2.379%, from 2.363% Friday. Bond yields rise as prices fall.

Bond prices slipped after the Senate passed revisions to the U.S. tax code Saturday and moved one step closer to pushing through $1.4 trillion in tax cuts. The House and Senate still need to reconcile competing versions of the tax plan, something GOP leaders hope to do by Christmas.

Investors sold bonds as stock climbed, with some analysts and investors saying the lower corporate tax rates could lift company earnings and boost growth, adding to the appeal of riskier assets.

Some investors say that the tax overhaul could help push wages higher, fueling inflation, which erodes the purchasing power of bonds' fixed payments. Analysts also expect the overhaul to require additional government borrowing, which could push yields higher as the supply of bonds increases.

The Senate vote increases the probability that some form of the legislation passes, which "has been good for risky assets," said Donald Ellenberger, head of multisector strategies at Federated Investors. The movement into stocks and the expectations for an increase in borrowing "should result in higher yields."

Many investors have said that passage of a tax cut plan could make the Federal Reserve more likely to increase the pace of its projected interest rate increases. Central bank officials at the Fed's September meeting forecast that they would raise interest rates once more this year and three times in 2018.

Jerome Powell, President Donald Trump's nominee to replace Janet Yellen as the head the Fed, signaled in testimony before the Senate last week that the bank is likely to raise rates when it meets next week.

(END) Dow Jones Newswires

December 04, 2017 17:57 ET (22:57 GMT)