BOND REPORT: Treasury Prices Rise As Senate Tax Bill Undergoes Wrangling
Treasury prices rose and yields fell Monday as Senate Republicans kicked off this week's efforts to pass the tax bill.
What are Treasury yields doing?
The benchmark 10-year Treasury yield fell 1.4 basis points to 2.328%. The two-year note yield was down 0.7 basis points to 1.744%. The 30-year bond yield was unchanged at 2.765%.
Bond prices move in the opposite direction of yields.
What's driving markets?
With the House passing its own version of the tax plan, the Senate Republicans aim to put their own bill to the vote by the end of this week. But with a slim majority in the Senate, concerns that defections from the GOP could scuttle the bill have kindled uncertainty. Montana Republican Sen. Steve Daines was against the current iteration of the tax legislation, his aide said Monday.
President Donald Trump, however, said the tax bill was going well, and would be tweaked in the days ahead.
See: Montana's Daines a 'no' on Senate tax bill: report (http://www.marketwatch.com/story/montanas-daines-a-no-on-senate-tax-bill-report-2017-11-27)
Read: Trump Today: President says 'a few changes' coming to tax bill (http://www.marketwatch.com/story/trump-today-president-says-a-few-changes-coming-to-tax-bill-2017-11-27)
A deficit-financed tax cut is likely to fuel a climb in Treasury yields, as the federal government will have to increase the size of its debt auctions. Trading for Treasurys can be influenced by large sales of government paper.
Back-to-back auctions of two-year notes and five-year notes attracted tepid demand. The central bank's uninterrupted schedule of interest-rate hikes in the face of tepid inflation has kept market participants away from short-dated government paper, whose value has faced gradual erosion. The two-year yield has risen more than half a percentage point since early September.
What did market participants say?
"The Senate budget committee will vote on whether or not to bring the current tax bill to the floor for a broader vote -- although that aspect is considered a formality at this point. What becomes more interesting is the vote-a-rama -- the process by which amendments are added and the true odds of the bill passing become more evident.," said Ian Lyngen and Aaron Kohli, fixed-income strategists for BMO Capital Markets.
What else is on investors' radar?
New home sales hit an annual rate of 685,000 for October (http://www.marketwatch.com/story/new-home-sales-surge-to-the-highest-in-a-decade-as-year-to-date-sales-rise-9-2017-11-27), compared to the forecast of 620,000 by economists polled by MarketWatch.
Dallas Fed President Robert Kaplan, a voting member of the rate-setting Federal Open Market Committee, appeared to back a December rate hike (http://www.marketwatch.com/story/feds-kaplan-signals-he-will-back-december-interest-rate-hike-2017-11-27). He said higher rates could also help curb "potential financial imbalances."
Minneapolis Fed President Neel Kashkari, also a voting member, will appear in a moderated question-and-answer session in Winona, Minn., at 6:30 p.m. Eastern. New York Fed President William Dudley will speak about the U.S. economy at 7 p.m. Eastern. Market participants say they will likely reaffirm the central bank's commitment to one more rate increase this year.
How are other assets doing?
The German 10-year government bond yield fell 2.3 basis points to 0.340%. The Italian 10-year government bond yield slipped 3.5 basis points to 1.787%.
(END) Dow Jones Newswires
November 27, 2017 16:47 ET (21:47 GMT)