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BOND REPORT: Treasurys See Buying On Reports Corporate Tax Cut Delayed Until 2019

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11/09/2017 | 11:38pm CEST

By Mark DeCambre, MarketWatch , Sunny Oh

U.S. Treasury yields edged slightly lower from their intraday peaks on Thursday after reports that corporate tax cuts would be delayed.

What are yields doing?

The 10-year Treasury note yield inched up 0.7 basis point to 2.333% after hitting an intraday high of 2.344%. The 2-year note yield fell 1.2 basis points to 1.633%, its highest yield since October 2008. The 30-year bond yield rose 2.3 basis points to 2.808%.

Bond prices and yields move in the opposite direction.

What's driving Treasurys?

Senate Republicans unveiled a tax plan that would delay a cut in corporate rates to 2019 in a bid to shrink the estimated budget deficit. That sparked a so-called flight to quality, where investors rotate away from stocks into Treasurys and assets perceived as relatively safe.

The bond buying subsided, however, after the House Ways and Means Committee approved a bill to revise the U.S. tax code, setting the stage for a vote by the full House as soon as next week.

According to an estimate by the Congressional Budget Office, the tax bill written by House Republicans would boost the U.S. deficit by $300 billion more than lawmakers estimated. Over a decade, it would increase the deficit by $1.7 billion, beyond the $1.5 trillion required to meet Senate rules under the recently passed budget, the CBO said.

Treasury traders are worried that tax cuts could increase the deficit and result in a boost to new issuance, which would be bearish for bond prices, pushing yields higher.

What did market participants say?

"It's a reaction to the equity market. We're at a situation where the valuations are so steep, where even equity investors want to invest in safe-haven assets like Treasurys. So, we can see a flight to quality," said Subadra Rajappa, head of U.S. rates strategy by Société Générale.

What data are ahead?

What are other assets doing?

Stocks showed the strongest reaction to the tax cut reports, with the Dow Jones Industrial tumbling more than 100 points. The Nasdaq Composite, the S&P 500 and the Dow all fell on Thursday.

European bonds sold off after the European Central Bank raised its growth forecast for the eurozone from 1.7 percent to 2.2 percent . The German 10-year yield rose 5 basis points to 0.377%, while the Italian 10-year yield rose 7 basis points to 1.810%.

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL 1.82% 25713.74 Delayed Quote.2.15%
NASDAQ 100 2.44% 7244.2716 Delayed Quote.11.89%
NASDAQ COMP. 2.42% 7613.498 Delayed Quote.8.60%
S&P 500 -0.59% 2750.79 Real-time Quote.3.50%
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