U.S. Government Bond Yields Rise After Senate Clears Tax Cut Hurdle
October 20 2017 - 10:33AM
Dow Jones News
By Sam Goldfarb
U.S. government bonds pulled back Friday as prospects brightened
for large tax cuts out of Washington.
In recent trading, the yield on the benchmark 10-year Treasury
note was 2.381%, according to Tradeweb, compared with 2.323%
Thursday. Yields rise when bond prices fall.
Investors dumped Treasurys overnight after the Senate approved a
budget resolution that would make it easier to reduce projected
future revenues by up to $1.5 trillion over the next decade.
Though hurdles remain, the vote is considered an important step
toward passing tax cuts that could reduce the value of Treasurys,
in part by growing the budget deficit.
When deficits expand, the government needs to respond by issuing
more bonds, weighing on the prices of existing debt. Tax cuts can
also spur economic growth, causing investors to favor riskier
assets, and inflation, which is a main threat to government bonds
because it erodes the purchasing power of their fixed payments.
Although the prospect of had tax cuts and infrastructure
spending helped support Treasury yields earlier this year,
investors had grown skeptical that Congress could pass meaningful
fiscal stimulus as it struggled to pass other legislation.
"There is just so little probability of meaningful tax reform
priced into the market that, any time you get a baby step toward
that, it's viewed as a big upside surprise," said Thomas Simons,
senior vice president and money-market economist in the Fixed
Income Group at Jefferies LLC.
While tracking Congress's actions, investors are paying close
attention to the latest reports and rumors about whom President
Donald Trump might nominate as the next leader of the Federal
Reserve.
Potential picks include Fed governor Jerome Powell, White House
economic adviser Gary Cohn, Stanford economics professor John
Taylor and former Fed governor Kevin Warsh. Mr. Taylor and Mr.
Warsh are seen by analysts as favoring tighter monetary policy than
Chairwoman Janet Yellen, who is also being considered.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
October 20, 2017 10:18 ET (14:18 GMT)
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