U.S. Government Bonds Calm Ahead of Tax Announcement
April 26 2017 - 11:30AM
Dow Jones News
By Sam Goldfarb
U.S. government bonds were struggling for direction Wednesday as
investors waited for President Donald Trump to release his
blueprint for a tax overhaul.
In recent trading, the yield on the benchmark 10-year Treasury
note was 2.332%, according to Tradeweb, compared with 2.330%
Tuesday. Yields rise as bond prices fall.
The prospect of a tax-code overhaul, including a large reduction
in the corporate tax rate, was a major impetus behind the so-called
Trump trade, which swept financial markets after last November's
election. Betting that expansionary fiscal policies could boost
growth and inflation, investors bought riskier assets such as
stocks and commodities and sold safe-haven assets including bonds,
sending the yield on the 10-year note as high as 2.6% in
mid-December from 1.867% on Election Day.
The Trump trade has sometimes shown signs of fading, with
investors growing skeptical that Congress could pass a tax
overhaul. After reaching 2.6% again in March, the 10-year yield
fell to a five-month low of 2.177% last week, reflecting lowered
expectations for fiscal stimulus, as well as a tight presidential
race in France and heightened geopolitical tensions.
This week, investors have regained some of their risk-appetite,
pushing yields higher. Following a first-round victory on Sunday,
the centrist French presidential candidate Emmanuel Macron has
emerged as a clear favorite heading into the final round of voting
on May 7, dimming concerns that France could elect an anti-European
Union candidate who would threaten the future of the eurozone.
Investors have also seized on some of the details of Mr. Trump's
tax plan, which is expected to be released later Wednesday.
Treasury Secretary Steven Mnuchin said Wednesday that the plan
would be "the biggest tax cut and largest tax reform in the history
of our country." That followed reports that the plan would slash
the corporate tax rate to 15% from 35%.
Still, the bond market's reaction to the emerging tax proposal
has been relatively modest, with investors hesitant to sell
Treasurys before there is more evidence that it could become law,
said Aaron Kohli, interest-rate strategist at BMO Capital
Markets.
There is "not a whole lot of reason to believe why any major
part" of Mr. Trump's plan will be passed by Congress, ensuring that
"the broad tone is still very bullish in the Treasury market," he
added.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
April 26, 2017 11:15 ET (15:15 GMT)
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