BOND REPORT: Treasury Yields Rise Ahead Of Economic Data

Treasury yields rose on Tuesday before a raft of early economic data that could clarify the outlook for fourth-quarter growth and the upcoming rate increase this December.

What are Treasurys doing?

The benchmark 10-year Treasury note yield rose 1.9 basis points to 2.391%, from 2.379% on late Monday, while the 30-year bond yield rose 1.7 basis point to 2.784%. The 2-year note yield rose 1.7 basis point to 1.827%, versus 1.810%.

What's driving markets?

Investors waited for a raft of economic data that could clarify the picture for fourth-quarter growth, after a solid showing from July to September. Trade balance and a nonmanufacturing index will give an idea of how both the services and export-focused industry are aiding growth. Strong economic data could help add to the chance of a Dec. 13 rate increase, which is nonetheless widely expected.

But most were still watching the progress of Republican tax legislation, a key issue for bond investors. The Republicans ran into roadblocks in their bid to reconcile the Senate and the House versions of the tax bill after the Senate included a corporate alternative minimum tax, or AMT, in contrast to the House bill, which jettisoned AMT for businesses.

If the final legislation raises deficits, the Treasury Department will have to ramp up issuance of government debt and possibly generate a supply glut, pushing bond prices lower.

What did market participants say?

"All cynicism aside, it's difficult to imagine that the corporate AMT problem isn't resolved quickly; after all including the provision would make the tax reform far less relevant. If the GOP's intension is to deliver the first major victory ahead of the midterm elections, this seems like more than just a procedural hiccup," said Ian Lyngen and Aaron Kohli, fixed-income strategists at BMO Capital Markets.

What else is on investors' radar?

The trade deficit for October is set for release at 8:30 a.m. Eastern. Economists polled by MarketWatch forecast the deficit to rise to $47.6 billion, compared with $43.5 billion in September.

At 10 a.m. Eastern, the Institute for Supply Management will release their nonmanufacturing index for November, a gauge of the service industry's health. Economists expect a reading of 59.0%, from 60.1% in October.

(END) Dow Jones Newswires

December 05, 2017 08:29 ET (13:29 GMT)