BOND REPORT: Treasury Yields Rise As Traders Hope For More Details About Trump's Tax Plans
February 27 2017 - 2:49PM
Dow Jones News
By Joseph Adinolfi, MarketWatch
Investors see rising odds of interest-rate increase in March
Treasury yields ticked higher on Monday as investors were
reluctant to make big investments in government bonds ahead of
President Donald Trump's first congressional address, market
strategists said.
The Wall Street Journal reported
(http://www.marketwatch.com/story/trumps-speech-to-congress-to-touch-on-tax-cuts-health-plan-2017-02-26)
that Trump's speech will focus on overhauling the tax code and
health-care system. But investors are wondering if his comments
about taxes will be similar to the broad-strokes statements he has
made in the past, or if he will delve into greater detail about his
plans and his hopes for pushing legislation through Congress.
The yield on the 10-year Treasury note five basis points to
2.365%, while the yield on the two-year note climbed 4.4 basis
points to 1.192%. The yield on the 30-year bond gained three basis
points to 2.982%.
"Will there be details? Will he mention the words
border-adjusted tax?," said Peter Boockvar, managing director and
chief market analyst at the Lindsey Group. "Or will we just get
vague comments that something big league is coming?"
Yields, which move inversely to prices, built on their gains in
midday trading as investors reacted to rising odds of a March
interest-rate hike, said Charlie Ripley, assistant vice president
of capital markets and trading at Allianz Investment Management.
Fed-funds futures, which investors use to price the odds of
interest-rate hikes, are showing more than a 30% chance of a March
hike. That's up from around 20% late last week.
"Today people are trying to assess what the Fed is likely going
to do at their March meeting," Ripley said.
There has been substantial confusion surrounding Republican tax
plans in recent weeks. Last week, Trump told Reuters that he
supports a border tax, but it was unclear whether he was referring
to the border-adjusted tax plan favored by House Republicans, or
something else. On Friday, Axios reported that Gary Cohn, chief
economic adviser to the president and former president of Goldman
Sachs, told a group of chief executive officers that the White
House doesn't support the border-adjusted tax, though the White
House subsequently denied the report.
The Republican border-adjusted tax plan would decrease the tax
paid by exporters on goods shipped out of the country, while
increasing taxes on imports.
Last week, Treasury yields notched their largest drop in
December,
(http://www.marketwatch.com/story/treasury-yields-on-track-to-decline-for-3rd-day-2017-02-24)driven
in part by minutes from the Federal Reserve's most recent policy
meeting, intensifying fears that far-right candidate Marine Le Pen
might prevail in the coming French presidential election and
concerns about the lack of detail surrounding the economic policies
put forth by the Trump administration.
Investors dumped bonds in the aftermath of the Nov. 8 U.S.
election, partly due to the expectation that Trump would swiftly
implement the program of corporate-tax cuts, infrastructure
spending and deregulation that he campaigned on.
Some of that trade has reversed in recent weeks as investors
judge that those policies--which are expected to boost inflation
and economic growth--might have a limited impact in 2017.
"People are concerned that it's going to take a while for this
to happen," said Joseph Colleran, senior vice president and head
trader at Leumi.
(END) Dow Jones Newswires
February 27, 2017 14:34 ET (19:34 GMT)
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