April 25, 2017 / 8:11 PM / 3 months ago

TREASURIES-Yields rise on tax reform, budget hopes

3 Min Read

    * Trump indicates compromise on budget
    * U.S. two-year note sale shows strong demand
    * Rising stocks reduce demand for bonds

 (Adds comment, byline, updates prices)
    By Gertrude Chavez-Dreyfuss and Karen Brettell
    NEW YORK, April 25 (Reuters) - U.S. Treasury yields rose on
Tuesday in line with gains in stocks as investors awaited
President Donald Trump's announcement on tax reform on Wednesday
and remained optimistic that the government would avert a
shutdown.
    Yields, which move inversely to prices, hit two-week highs
for a second straight session, except for those on U.S. 7-year
notes, which still traded higher on the day.
    Last week, Trump promised a "big announcement" on reforming
the U.S. tax code, which was pledged during his campaign. An
administration official, however, said over the weekend that the
announcement will consist of "broad principles and priorities."
            
    Trump's promise on tax reform had helped boost U.S. Treasury
yields in the early days after his election. Analysts said the
current federal income tax system is essentially anti-growth,
overly complex, as well as uncompetitive internationally and is
therefore in dire need of an overhaul.
    "It could be that investors are hedging their bets against a
very effective tax proposal," said Lou Brien, market strategist
at DRW Trading in Chicago, explaining part of Tuesday's Treasury
sell-off.
    Investors were also confident that any U.S. government
shutdown could be prevented, particularly after Trump indicated
he would compromise on a budget.
    Trump on Monday signified an openness in delaying his push
to secure funds for his promised border wall with Mexico,
potentially eliminating a budget sticking point.             
    If the government is shut down for any significant period,
the Federal Reserve would not have access to data needed to
gauge the strength of the economy, reducing the likelihood of a
near-term rate increase.
    Benchmark 10-year notes             were last down 18/32 in
price to yield 2.339 percent, up from 2.27 percent late on
Monday. The yields hit a two-week high of 2.343 percent.
    U.S. 10-year yields hit five-month lows of 2.17 percent last
Tuesday as concerns grew about France’s vote. Centrist Emmanuel
Macron is now expected to defeat far-right leader Marine Le Pen
in the May 7 presidential runoff.
    Tuesday's U.S. two-year note sale showed strong demand, with
indirect bidders accounting for their largest purchase in nearly
eight years, Treasury data showed.
    The Treasury awarded investment funds, foreign central banks
and other indirect bidders 58.92 percent of the latest two-year
government note supply, their largest since June 2009.
            
    U.S. 30-year bond prices were down more than a point,
yielding 2.991 percent US30-YT=RR, up from Monday's 2.926
percent.
    On the front end, U.S. two-year yields were also up at 1.274
percent           , from Monday's 1.233 percent.

 (Editing by James Dalgleish)
 
 

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