U.S. government bond prices fell Wednesday as U.S. lawmakers closed in on a historic tax overhaul, pushing yields higher in a surge that comes after months of relative calm in the government bond market.
The yield on the benchmark 10-year Treasury note rose to 2.477%, according to Tradeweb, from 2.464% on Tuesday. Yields rise as bond prices fall.
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The 10-year Treasury climbed above 2.4% Tuesday as U.S. lawmakers neared the biggest tax overhaul in years, breaching a level it has struggled to cross since March. The U.S. Senate passed a tax bill Tuesday and the U.S. House of Representatives will vote on it a second time Wednesday.
"It's clearly tax policy having an impact," said Kathy Jones, chief fixed income strategist at Charles Schwab, of the move higher in yields. "There were really doubts that this would happen. Until the votes were actually assured and there was a little more clarity about what was in the bill, people would hold off."
Many had predicted higher Treasury yields this year as U.S. economic growth accelerated and Congress closed in on a tax overhaul. The 10-year yield has instead traded within a relatively narrow range, even as the prospect of changes to the tax code have buoyed major U.S. stock indexes for much of this year as they hit record after record.
Before this week's trading, the 10-year Treasury was on pace to record the most muted moves in almost four decades. The benchmark notes were on pace for the smallest absolute daily percentage change since 1978, according to The Wall Street Journal Market Data Group.
Investors and analysts said the tax plan could boost growth and inflation, which is a threat to long-term government bonds because it erodes the purchasing power of their fixed payments. It could also increase the federal deficit, increasing the supply of Treasurys.
The 10-year yield remains below its yearly high of 2.609% hit in March, and some analysts said light holiday trading could be exacerbating moves. Yet some investors may get spooked if the yields stay up near 2.50% or move higher, which could fuel more selling, said Thomas Roth, executive director in the rates trading group at MUFG Securities Americas Inc.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
(END) Dow Jones Newswires
December 20, 2017 12:12 ET (17:12 GMT)