U.S. Government Bonds Advance as Tax Plan Details Emerge

U.S. government bonds gained Thursday as investors assessed the impact of a Republican plan to overhaul the U.S. tax code.

The yield on the benchmark 10-year U.S. Treasury note fell to 2.347%, the lowest close in two weeks, from 2.378% Wednesday. Bond yields fall as prices rise.

Bond yields had risen last week as investors speculated that Republicans would propose measures that were stimulative to the economy, and which would lead to significantly larger budget deficits. The plan, as detailed Thursday, would slice the top corporate tax rate to 20% from 35%.

Many investors, however, were surprised that the plan left the top bracket for individuals at 39.6%, as they had expected a lower top rate to provide more economic stimulus. The proposal also included curbs on some popular individual deductions, including on mortgage interest, which may restrain growth of the budget deficit.

"The tax package is a lot weaker than people expected," said Andrew Brenner, head of global fixed income at National Alliance Capital Markets. "They're trying to get the out-year deficits down, and the Treasury market is responding positively."

Yields were also pushed lower as U.K. government bonds rallied after the Bank of England raised interest rates for the first time since the financial crisis, and as investors assessed the impact of the nomination of Federal Reserve Board Gov. Jerome Powell to become the central bank's next chairman.

Mr. Powell is viewed by investors as representing a continuation of Fed Chairwoman Janet Yellen's gradual approach to raising interest rates and returning monetary policy to its precrisis norms.

The market is relieved that "it's the Powell Fed and not the somebody-else Fed," said Jim Vogel, head of interest-rate strategy at FTN Financial. Some investors had been concerned that other candidates who favored more aggressive strategies to raise interest rates might have raised risks of upsetting the recovery.

With the Fed meeting this week and the Treasury announcing its borrowing plans for coming months, investors and analysts "haven't re-upped our angst about Powell because we've been too busy," he said.

(END) Dow Jones Newswires

November 02, 2017 16:57 ET (20:57 GMT)