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Markets

Prices edge higher as US, global uncertainty weighs

  NEW YORK: US Treasury prices rose on Thursday on steady demand for government bonds following the announcement
27 Apr 2017

 

us-bond-1024NEW YORK: US Treasury prices rose on Thursday on steady demand for government bonds following the announcement of President Donald Trump's unimpressive tax plan and on persistent uncertainty over French elections and tensions in North Korea and Syria.

Analysts said expected month-end changes to portfolio benchmarks had also supported long-dated Treasuries.

"Trump is having difficulty getting his agenda done. He hasn't been able to do what people expected him to do for the first hundred days," said Tom di Galoma, managing director at Seaport Global in New York.

Trump on Wednesday unveiled a one-page plan proposing deep tax cuts, many for businesses, that would make the federal deficit balloon if enacted, far short of comprehensive reforms both parties in Washington have sought for years.

"The announcement on taxes by the Trump administration does not change our forecast that only modest tax cuts will eventually be passed with little tax reform," said Mark Doms, senior economist and managing director at Nomura in Washington.

"Congress will have little appetite to increase the deficit and debt significantly, especially given the bleak fiscal outlook," he added.

In late morning trading, benchmark 10-year notes were up 5/32 in price to yield 2.292 percent, compared with 2.311 percent late on Wednesday.

US 30-year bond prices rose 5/32, yielding 2.961 percent, down from Wednesday's 2.97 percent.

"Certainly, global uncertainty has supported the market," said Seaport's di Galoma. "We have the French election, which is far from certain and then we have North Korea and Syria."

On the front end, US two-year yields were at 1.269 percent, from Wednesday's 1.278 percent.

The market is also awaiting the US Treasury's $28-billion, 7-year note auction, coming off a tepid 5-year note sale on Wednesday.

"We remain slightly constructive on the 7-year takedown," said Nomura Securities in a research note. "The likelihood of a government shutdown next week as well as some disappointment on the tax reform announcement could boost some duration demand."

The note's valuation, though, has been unattractive, analysts said, partly a result of the political headlines which have driven rates lower and brought a risk-off tone that has benefited US five- and seven-year debt.

Ahead of the auction, US 7-year notes were up 3/32 in price, yielding 2.098 percent, down from 2.115 percent late on Wednesday.

 

Copyright Reuters, 2017