By Joseph Adinolfi, MarketWatch

10-year yield on track for largest one-day drop in a month

Treasury yields tumbled Monday to their lowest levels in a month after President Donald Trump capitulated to a fractious Republican caucus by withdrawing his proposal to repeal and replace Obamacare.

The yield on the 10-year note was off 3.7 basis points at 2.376%, its lowest level since Feb. 28. The yield on the 30-year bond was off 3.2 basis points at 2.983%. The yield on the two-year note was down 1.2 basis point at 1.249%.

If yields, which move inversely to prices, end the day at these levels, it would mark the largest one-day drop in two weeks, when the Federal Reserve's perceived reluctance to signal a faster pace of rate increases triggered an aggressive rally in Treasurys.

Treasury yields shot higher following Trump's Nov. 8 upset victory as investors reasoned that, with Republicans in control of each house of Congress, the Trump administration would have little trouble enacted the purportedly pro-growth fiscal policies he had campaigned on--including corporate tax cuts, deregulation and infrastructure spending.

But the defeat of health care, Trump's first major legislative push, has forced investors to rethink these assumptions as divisions between conservative and centrist Republicans threaten to stymie the administrations' other policy efforts.

Check out: These 5 charts show how Trump's health-bill flop is hitting markets (http://www.marketwatch.com/story/these-5-charts-show-how-trumps-health-care-flop-is-hitting-markets-2017-03-27)

"The failure of Trump's health-care legislation imperils the other pro-business aspects of his agenda," said Guy LeBas, chief fixed income strategist at Janney Capital Markets.

Another factor weighing on yields is the weakening dollar, which has made U.S. debt more attractive to foreign buyers like Japanese insurance companies and Swiss asset managers, LeBas said. U.S. yields are higher relative to their European and Japanese counterparts.

Read: Trump tax-cut trade was leaking air before health-care debacle, chart shows (http://www.marketwatch.com/story/investors-are-scaling-back-corporate-tax-cut-hopes-in-one-chart-2017-03-27)

The ICE U.S. Dollar Index was off 0.5% at 99.1660 in recent trade, its lowest level since November.

"Part of this reflects the concept that the marginal buyer of U.S. Treasury notes lives overseas," LeBas said.

An auction of $24 billion in two-year Treasury notes received strong demand, with investors paying a slight premium for notes sold at the auction. Strong Treasury auctions tend to influence the yields in outstanding Treasury notes, pushing them lower.

Also read: Here's why financial markets are obsessed with the health-care vote (http://www.marketwatch.com/story/what-traders-are-watching-as-health-care-vote-looms-2017-03-23)

(END) Dow Jones Newswires

March 27, 2017 13:47 ET (17:47 GMT)