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NEW YORK: US Treasury yields dropped on Monday but remained higher than their late Friday levels, boosted by increased confidence that the US Congress would enact tax cut legislation after the Senate passed a bill early Saturday.

The increased expectation for the tax cut pushed yields on benchmark US 10-year Treasury notes to 2.42 percent overnight in Asian trading.

However, much of that rise was retraced in morning US trading as investors remained concerned over Michael Flynn, former national security adviser to US President Donald Trump and Special Counsel Robert Mueller's investigation, analysts said.

On Friday, Flynn pleaded guilty to lying to Federal Bureau of Investigation agents, and said he was cooperating with Mueller's probe of Trump's 2016 presidential campaign and Russia.

Analysts also said bond market traders remain skeptical of the impact the tax legislation will have on US growth.

"I think people in general are very optimistic; it's looking like it will get passed," said Societe Generale head of US rates strategy Subadra Rajappa.

"The question is what impact will it have on the economy. That's where there's less optimism. People aren't expecting much growth. It will be positive for stocks, but ... we're expecting only a very modest impact on (gross domestic product growth) next year."

The 10-year note was down 8/32 in price, yielding 2.394 percent, up 3 basis points from its Friday close but around 3 basis points lower than its Monday opening.

"The global equity market has performed well on the news and the risk-off sentiment has been the most significant driver in the Treasury market," said Ian Lyngen, interest rates strategist at BMO Capital Markets in a note to clients.

 

Copyright Reuters, 2017