BOND REPORT: Treasurys Rally After Report Says Flynn Will Testify About Trump
Treasury prices rose, pulling yields lower, on Friday after a news report said former National Security Adviser Michael Flynn, who took a plea deal in the Russian meddling case, will testify about President Donald Trump.
What are yields doing?
The 10-year benchmark note yield shed 8.6 basis points to 2.329%. The 2-year Treasury note yieldfell 2.4 basis point to 1.762%. The 30-year bond yield plummeted 9.7 basis points to 2.743%
Bond prices move in the opposite direction of yields.
What's driving Treasurys?
ABC News reported that Flynn will testify about Trump as part of a larger probe conducted by Special Counsel Robert Muller into the Trump election campaign's ties with Moscow. Flynn had pleaded guilty on Friday to making false statements to the FBI (http://www.marketwatch.com/story/michael-flynn-charged-with-lying-to-fbi-about-russian-ambassador-conversations-2017-12-01)about his contact with Russia.
Analysts said the political fallout is prompting investors to take risk off the table as they see what Flynn's testimony spells for Trump's pro-growth agenda. Market participants switched out of stocks (http://www.marketwatch.com/story/us-stocks-turn-lower-following-reports-flynn-will-testify-about-trump-2017-12-01)into assets perceived as safe, like bonds.
See: Former Trump national-security adviser Michael Flynn pleads guilty to lying to FBI (http://www.marketwatch.com/story/former-trump-national-security-adviser-michael-flynn-pleads-guilty-to-lying-to-fbi-2017-12-01)
Senate Republicans had to delay their tax vote as they will need to overcome a parliamentary hurdle and mollify Republican deficit hawks, after the nonpartisan Joint Committee on Taxation said the bill would widen budget deficit by around $1 trillion over a decade. The 11th-hour hiccup has drawn concerns over the viability of the current version of the Senate tax cuts. But a final vote could still come Friday.
Read: Here's what's next for the Senate's tax bill (http://www.marketwatch.com/story/heres-whats-next-for-the-senates-tax-bill-2017-11-30)
A new bill that was closer to becoming deficit-neutral would allay concerns that the Treasury Department will have to increase the size of their debt auctions, which could be bearish for government paper.
What did market participants say?
"I think that it's so hard to see how hard this evolves. But given the risk rally we've seen this week, we're going risk-off. If you look at the week itself, we're still probably higher on stocks, certainly the [ABC news report] is giving investors much to digest," said Marvin Loh, senior fixed-income strategist at BNY Mellon.
Even after the sudden plunge in stocks, the S&P 500 and the Dow Jones Industrial Average is still higher overall for the week.
"In classic Washington style, the Senate tax reform bill has shifted from a forgone conclusion to an open question--to put it diplomatically. The issue comes down to the fact that the tax cuts won't pay for themselves," wrote Ian Lyngen and Aaron Kohli, fixed-income strategists for BMO Capital Markets.
What else is on investors' radar?
The Institute for Supply Management said November's manufacturing composite index, a measure of nationwide industrial activity, fell to a nonetheless strong reading of 58.2% (http://www.marketwatch.com/story/us-manufacturers-roar-ahead-ism-shows-2017-12-01). Economists surveyed by MarketWatch had forecasted 58.
New York Fed President William Dudley said introducing fiscal stimulus amid strong growth and low unemployment was "probably not the best time," (http://www.marketwatch.com/story/feds-dudley-sees-no-need-for-fiscal-stimulus-at-time-of-solid-growth-2017-12-01) he said. St. Louis Fed President Jim Bullard said the yield curve, a line tracing Treasury maturities against their yields, was at risk of inverting (http://www.marketwatch.com/story/feds-bullard-warns-yield-curve-could-invert-next-year-2017-12-01) next year, considered a precursor to a recession.
(END) Dow Jones Newswires
December 01, 2017 12:10 ET (17:10 GMT)