By Min Zeng 

The U.S. government bond market pulled back Thursday, driven by some profit-taking following the biggest four-day price gains since June ahead of a planned House vote on the health-care bill.

A strong housing report Thursday also weighed on bond prices. New home sales rose by 6.1% last month compared with a 1.4% gain forecast by economists, a positive sign for the U.S. economy.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.409%, according to Tradeweb. The yield was 2.398% Wednesday, the lowest close since the end of February. Yields rise as bond prices fall.

Uncertainty over the passage of the health-care bill rattled the Trump trade earlier this week, causing investors to dial back exposure to riskier assets and embrace haven bonds. The Dow Jones Industrial Average on Tuesday logged the biggest one-day selloff since September while Treasury bond yields sank.

Since President Donald Trump's win in November, buying stocks and the dollar while selling Treasurys have been the popular trades for investors to bet that fiscal stimulus via tax cuts and large infrastructure spending will boost growth and inflation.

"The fear is if this doesn't pass, then getting tax reform and infrastructure spending done will be very difficult," said Thomas Roth, executive director in the rates trading group at MUFG Securities Americas Inc.

In this case, "all the high hopes of pulling the economy out of the low growth mode go away," which would boost demand for Treasurys relative to riskier assets, he said.

Wagers on higher bond yields, or shorts, are prone to further pullback if the Trump trades suffer fresh setback, traders say. Unwinding shorts require investors and traders to return to the bond market as a buyer, driving yields lower. When short-covering trades intensify, that would send yields down sharply, warn analysts.

Hedge funds and money managers accumulated a net $89 billion worth of shorts for the week that ended March 14, via Treasury futures, according to TD Securities. That was down from $93.9 billion a week ago. The net shorts reached $100.7 billion in early January, the highest since 2008.

The 10-year yield has jumped more than 1 percentage point from its record close low of 1.366% set last July, driven by an improving global economic outlook, higher inflation, the prospect of expansive U.S. fiscal policies and the Federal Reserve's plan to raise short-term interest rates.

The yield rose above 2.6% last week and reached the highest level since September 2014 as investors brought forward the Fed's rate increase from June to this month. The Fed did act on March 15 but signaled a gradual path for further rate increases, which deflated fears over a swift rise in yields and stoked demand for bonds again.

Another support for Treasurys: U.S. bonds offer more appealing yields than their peers in Japan and Europe. The yield premium investors demanded to hold the 10-year Treasury note relative to the German bund earlier this week fell to the lowest level since November. A shrinking premium suggests some investors sold bunds to buy Treasurys, highlighting the appeal of U.S. bonds in a low-yield world.

Write to Min Zeng at min.zeng@wsj.com

(END) Dow Jones Newswires

March 23, 2017 11:23 ET (15:23 GMT)

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