Treasury prices rose, and yields declined, as bond investors' expressed doubts about the White House's ability to push through an ambitious tax plan, which includes a corporate tax cut to 15% from 35% for top payers, through Congress.
The yield on the 10-year Treasury note fell 1.8 basis points to 2.312%, after earlier pushing above important chart resistance at 2.32%. Bond prices move in the opposite direction of yields; one basis point is one hundredth of a percentage point.
Yields for the 2-year note rose 0.3 basis point to 1.278%, while yields for the 30-year bond slipped 1.2 basis points to 2.971%.
U.S. Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn revealed the outlines of a tax overhaul Wednesday afternoon, that sought to eliminate the alternative minimum and estate taxes, and get rid of other deductions. But the news conference provided broad strokes rather than specific details and helped stoke skepticism about President Donald Trump's ability to make the plans a reality.
A possible reduction in taxes has underpinned a run-up in assets perceived as risky, like stocks.
But bond investors have harbored doubts about Trump's ability to reach across the aisle and carry out major fiscal reforms, which would be bearish to bond prices, pushing yields higher.
A proposal for major changes to the tax plan, comes as Treasury yields have maintained relatively low yields, despite a brisk two-day rally in stocks that saw the Nasdaq Composite Index rally to its first record since March 1, and breached a psychologically important level of 6,000 on Tuesday (http://www.marketwatch.com/story/us-stocks-poised-to-build-on-rally-with-flood-of-earnings-ahead-2017-04-25). Yields on the 10-year Treasury note have been unable to breach a resistance level of 2.60%, their highest levels during the early days of Trump's presidency.
"Based on what we've seen, it seems a fairly significant tax cut, but it's not clear how its going to get past the Democrats, let alone the fiscal hawks," said Aaron Kohli, an interest rate strategist for BMO Capital Markets. "The markets are taking these claims with a grain of salt. That's why you're seeing the yields do the swan dive."
"The "tax code rally" doesn't have the same ring to it, however, an aggressive cut to the tax rate could be a key driver for stocks going forward, as long as the plan is not watered down by Congress in the legislative phase," said Kathleen Brooks, research director at City Index, in a note.
See: Trump's 15% corporate tax rate could cost the government $2 trillion (http://www.marketwatch.com/story/trumps-15-corporate-tax-rate-could-cost-the-government-2-trillion-2017-04-25)
Meanwhile, demand for an auction of $34 billion of 5-year notes was soft and had little impact on trading, said market participants. Auctions of U.S. government paper can impact yields and prices for the outstanding market.
(END) Dow Jones Newswires
April 26, 2017 17:03 ET (21:03 GMT)