By Min Zeng

The yield on the benchmark 10-year U.S. Treasury note fell to a one-month low Monday as investors lost appetite for riskier markets after House Republicans pulled their health-care bill before a vote in Congress last week.

The yield on the 10-year note closed at 2.373%, compared with 2.396% Friday. It was the yield's lowest close level since the end of February. Yields fall as bond prices rise.

The GOP's failure to pass its health bill represents a big setback for President Donald Trump's legislative agenda, raising investor concerns over his ability to push through his fiscal stimulus proposals, including lower taxes, large infrastructure spending and less burdensome regulations.

"The key will be how much tax reform can actually get done, that's the main issue for investors right now," said Jim Caron, fixed-income portfolio manager at Morgan Stanley Investment Management.

The 10-year Treasury yield sank as low as 2.348% earlier Monday, before a bout of profit-taking pushed the yield off its low. Analysts say the volatility reflects a tug of war between investors sticking to their hopes over an eventual rollout of fiscal stimulus and those who are becoming more skeptical after the failure of the health-care legislation.

"While we certainly remain skeptical about Trump's ability to deliver on many of his campaign promises in the current political environment, we're reminded of the fact that four years...is a lengthy period in which to reach some type of political reconciliation," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

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

These bets were pulled back across the board Monday. The Dow Jones Industrial Average fell to its lowest level in more than a month, though the loss was trimmed Monday afternoon. The ICE dollar index, which measures the U.S. currency against a basket of other currencies, fell to its lowest level since November.

These concerns stoked demand for assets considered havens. Government bond yields in Germany and the U.K. also fell while gold prices gained ground.

Monday's price gains extended the Treasury bond market's rebound from a selloff earlier this month. The 10-year yield closed above 2.6% on March 13 and settled at the highest level since September 2014, as investors' expectations brought forward the Federal Reserve's rate increase to March from June.

The yield sank after the Fed raised rates but signaled a slow path of tightening, boosting the appeal of bonds. The pullback of Trump trades over the past week heightened the bond market's strength.

Wagers on higher bond yields, or shorts, have been retreating. 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, analysts say.

Hedge funds and money managers accumulated a net $74 billion worth of shorts for the week ended March 21, via Treasury futures, according to TD Securities. That was down from $89 billion during the previous week. The net shorts reached $100.7 billion in early January, the highest since 2008.

Some say declines in bond yields may not last long. They argue that the failure to repeal the Affordable Care Act may strengthen Mr. Trump's resolve to push through fiscal stimulus, and that eventually a fiscal package is likely to roll out.

The 10-year yield has jumped about 1 percentage point from its record-low close 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 Fed's plan to raise short-term interest rates.

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

(END) Dow Jones Newswires

March 27, 2017 16:12 ET (20:12 GMT)

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