U.S. Government-Bond Prices Fall on Signs of Progress on Tax-Cut Plan

U.S. government-bond prices fell Monday after the latest signs of progress on a tax-cut package.

The yield on the benchmark 10-year U.S. Treasury note rose to 2.382%, according to Tradeweb, from 2.353% Friday. Bond yields rise as prices fall.

Investors sold bonds and bought stocks after lawmakers Friday released fresh details of the plan, which Republicans hope to pass as soon as Tuesday.

The gap between two- and 10-year Treasury yields continued to narrow, extending a move that has been one of the more persistent trends of the bond market in 2017. The two-year yield, which is more responsive to expectations for Federal Reserve interest-rate policy, has climbed as the central bank has followed through on forecasts for higher borrowing costs. At the same time, the 10-year yield has traded within a narrow range, seldom reaching above 2.4%.

The Fed met its 2017 forecast of three interest-rate increases and has projected three more raises for 2018, and two more for 2019. While inflation has largely held below the central bank's 2% target since 2012, policy makers have said they are moving now to prevent it from gaining a foothold in the economy.

"Everybody's so convinced the Fed is ahead of the curve" of inflation, said Jack Flaherty, a bond manager at GAM Holdings AG, helping suppress gains in long-term yields.

The Fed is forecasting that its preferred measure of prices, personal-consumption expenditures, will rise 1.5% this year, climbing to 1.9% next year and reaching its 2% target in 2019. Those forecasts are unchanged from the Fed's September meeting. Policy makers did raise their growth projections at their meeting last week to 2.5% for this year and next, and 2.1% for 2019, compared with September's estimates of 2.4%, 2.1% and 2%, respectively.

Write to Daniel Kruger at daniel.kruger@wsj.com

U.S. government-bond prices fell Monday after the latest signs of progress on a tax-cut package.

The yield on the benchmark 10-year U.S. Treasury posted its biggest one-day jump since Dec. 7, rising to 2.392% from 2.353% Friday. Bond yields rise as prices fall.

Investors sold bonds and bought stocks after lawmakers Friday released fresh details of the plan, which Republicans hope to pass as soon as Tuesday.

The gap between two- and 10-year Treasury yields widened, interrupting a move that has been one of the more persistent trends of the bond market in 2017. The move came as data from the National Association of Home Builders/Wells Fargo said that confidence among U.S. home builders reached its highest level since 1999.

The two-year yield, which is more responsive to expectations for Federal Reserve interest rate policy, has climbed as the central bank has followed through on forecasts for higher borrowing costs. At the same time, persistent demand for higher yielding bonds has helped the 10-year yield stay within a narrow range, seldom reaching above 2.4%.

The Fed has projected three interest rate increases for 2018, and two more for 2019. While inflation has largely held below the central bank's 2% target since 2012, policy makers have said they are moving now to prevent it from gaining a foothold in the economy. Inflation is a threat to longer-term government bonds because it erodes the purchasing power of their fixed payments.

"Everybody's so convinced the Fed is ahead of the curve" of inflation, said Jack Flaherty, a bond manager at GAM Holdings AG, which helps suppress gains in long-term yields.

The Fed forecast last week that its preferred measure of prices, personal-consumption expenditures, will rise 1.5% this year, climbing to 1.9% next year and reaching its 2% target in 2019. Those forecasts were unchanged from the Fed's September meeting. Policy makers did raise their growth projections at their meeting last week to 2.5% for this year and next, and 2.1% for 2019, compared with September's estimates of 2.4%, 2.1% and 2%, respectively.

(END) Dow Jones Newswires

December 18, 2017 16:44 ET (21:44 GMT)