BOND REPORT: Treasury Yields Climb As Tax Cuts Return To Agenda

Treasury prices fell slightly on Thursday, nudging yields higher, after the House of Representatives passed a budget resolution seen as a necessary step toward enacting tax cuts (http://www.marketwatch.com/story/house-takes-step-toward-major-tax-bill-by-passing-budget-resolution-2017-10-05).

What did Treasury yields do?

The 10-year Treasury yield rose 2 basis points to 2.352% from 2.332% on late Wednesday, according to WSJ Market Data Group. The 2-year Treasury note yield rose 2 basis points to 1.495%, versus 1.479%. The 30-year Treasury bond yield added a basis point to 2.893%, from 2.878%. Bond prices move inversely to yields.

What is driving markets?

Read:Pocket guide to Trump's candidates for top Fed spot (http://www.marketwatch.com/story/pocket-guide-to-trumps-candidates-for-top-fed-spot-2017-10-05)

Tax cut hopes stoked appetite for stocks and other assets perceived as risky at the expense of Treasurys. The House passed a $4.1 trillion budget in the afternoon, which analysts said may lead to a revamp of the U.S. tax code. The reflation trade hinges on the ability of President Donald Trump's pro-growth agenda to boost growth and inflation, which wears away the worth of bond's fixed-interest payments.

Investors are also bracing for labor-market data on Friday that could help guide the Federal Reserve's policy plans and influence trading in government paper. Market participants grappled with concerns that a Catalan independence vote (http://www.marketwatch.com/story/european-stocks-trade-mixed-as-investors-absorb-catalonia-developments-2017-10-05) could stir further trouble for Spain and the viability of the European Union, as analysts say it could encourage other regional separatist movements to seek a divorce from other eurozone member nations.

What did market participants say?

"Part of the action was driven by the risk-on environment we're in," said Marvin Loh, senior fixed-income strategist at BNY Mellon. "But it's a combination of a lot of things. The data has been better, and some of the Fed names coming up are hawkish, so maybe there's some people positioning around that."

"The [factory orders] number are suggesting some upside risk to fourth-quarter GDP, largely on the back of healthy investment in equipment," said Sal Guatieri, senior economist for BMO Capital Markets.

What are Fed speakers saying?

See: Jerome Powell, in the running for top Fed spot, echoes one of Trump's economic themes (http://www.marketwatch.com/story/jerome-powell-in-the-running-for-top-fed-spot-echoes-one-of-trumps-favorite-economic-themes-2017-10-03)

What economic data are on investor's radar?

What other assets are on the move?

European bonds have rallied after an auction for Spanish government paper saw strong appetite, easing concerns that Catalan tensions would hammer its bond market. The French 10-year fell a basis point to 0.735%, while the Spanish 10-year fell 9 basis points to 1.699%. The German 10-year Treasury yield was at 0.454%, compared with 0.452% on Wednesday.

On Wednesday, Ireland issued its first negative-yielding government bond, meaning investors will have to pay to own the sovereign paper if they hold it until maturity. Ireland's 5-year note yielded negative 0.144%.

(END) Dow Jones Newswires

October 05, 2017 16:10 ET (20:10 GMT)