BOND REPORT: Treasury Yields Extend Decline After Tax Plan Unveiled; Powell Picked As Next Fed Head
Trump selects Powell as new Fed chief
Treasury yields extended the previous day's fall (http://www.marketwatch.com/story/treasury-yields-tip-higher-as-global-equities-climb-fed-policy-update-looms-2017-11-01)on Thursday as investors parsed the details of House Republicans' long-awaited tax plan and received confirmation that President Donald Trump would nominate Federal Reserve Gov. Jerome Powell as the next chief of the central bank.
What are Treasury yields doing?
The yield on the 10-year Treasury note fell 3.1 basis points to 2.347%. The 2-year note yield fell 1.2 basis point to 1.608%. The 30-year bond yield slipped 3.6 basis points to 2.829%, from 2.865%.
Bond prices move in the opposite direction of yields.
What is driving markets?
House Republicans released their tax bill on Thursday after a one-day delay (http://www.marketwatch.com/story/house-gop-delays-tax-bill-plans-to-keep-top-individual-rate-of-396-2017-10-31). Tax cuts could widen budget deficits, forcing the Treasury Department to issue more debt, weighing on prices. The tax bill, in its current form, slashes the top marginal corporate tax rate from 35% to 20%.
Analysts said the plan is seen as tilted away from boosting short-term consumption and more toward boosting longer-term investment.
See: Here's a breakdown of how the new House tax bill impacts your taxes (http://www.marketwatch.com/story/heres-a-breakdown-of-how-the-new-house-tax-bill-impacts-your-taxes-2017-11-02)
President Donald Trump said he would nominate Federal Reserve Gov. Jerome Powell as the next Fed boss (http://blogs.marketwatch.com/capitolreport/2017/11/02/live-blog-and-video-of-trump-introducing-his-fed-chair-nominee/) to take over from Janet Yellen when her term as chairwoman ends in February.
Powell is perceived as a nominee that would be less aggressive about raising interest rates than other potential candidates, and one who will have a big hand in deciding when to terminate the current tightening cycle. Treasurys showed little reaction to the news as investors had anticipated Trump's pick for days.
Read: What a Jerome Powell Fed means for investors and the economy (http://www.marketwatch.com/story/imagining-life-under-a-jerome-powell-fed-2017-10-20)
What do analysts say?
"That the [Republicans] don't want to bust the budget deficit trend is a mild positive [for the bond market]," said Jim Vogel, interest-rate strategist at FTN Financial. "But the bigger thing is the realization that the Republicans are going to emphasize lower corporate tax rates as a pro-growth measure, and not make changes in the personal tax code. That changes the incentives between investment and consumption, it sort of removes that sugary give-it-to-me-now kind of stimulus."
"The devil is going to be in the details. The questions is what actually gets passed. What the bond market really cares about is how much of the tax cut will end up with consumers," said Kathy Jones, senior fixed income strategist at the Schwab Center for Financial Research.
What else are on investors' radar?
What assets are on the move?
U.K. government bonds saw heavy buying, pulling yields lower, after the Bank of England raised rates for the first time in a decade on Thursday. The U.K. 10-year government bond yield fell 8.4 basis points to 1.261%.
Seven out of nine members of the BOE's policy-making panel voted for hiking its benchmark interest rate to 0.5% from 0.25%. Chief central banker Mark Carney said the BOE would raise rates two more times over the next three years.
Also check out: Bank of England raises key interest rate to 0.5%, first hike in 10 years (http://www.marketwatch.com/story/bank-of-england-raises-key-interest-rate-to-05-first-hike-in-10-years-2017-11-02)
(END) Dow Jones Newswires
November 02, 2017 15:52 ET (19:52 GMT)