U.S. Government Bonds Surge on Flynn Report

Government bond prices rose Friday after a report that former national security adviser Michael Flynn is prepared to testify that President Donald Trump "directed him to make contact with the Russians" during the campaign.

The yield on the benchmark 10-year U.S. Treasury note recently traded at 2.347%, according to Tradeweb, from 2.417% on Thursday.

Some analysts said it wasn't yet clear what the implications of the ABC News report would be, and that it could threaten Republican efforts to overhaul the tax code even as they stood on the verge of passing a Senate bill Friday.

"The whole agenda seems to be up in the air," said Aaron Kohli, interest-rate strategist at BMO Capital Markets.

Yields, which rise as bond prices fall, had declined early Friday after signs of a stall in Republican tax overhaul efforts. Bonds then stabilized after reports the plan was set to pass the Senate, another sign of how closely markets are tracking Washington's tax plans, investors said.

Friday's rally came a day after investors drove major U.S. stock indexes to records and sold Treasurys in anticipation of the tax bill's passage. The yield on the two-year Treasury note hit its highest level in nine years Thursday as the yield on the 10-year Treasury note rose to its highest closing level in over a month.

Yields had climbed in recent sessions along with the prospects for the bill's passage. That "was vulnerable to begin with" because the move by investors toward risky assets was so strong, generating a corresponding desire to sell safe securities, said Andrew Brenner, head of global fixed income at National Alliance Capital Markets.

"All of a sudden you've had to reverse course in the middle of a trade" and it is produced an extreme reaction, he said.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

December 01, 2017 12:26 ET (17:26 GMT)