By Sam Goldfarb
U.S. government bond prices edged lower Friday after a week of sharp swings driven by shifting views on the prospect for fiscal stimulus out of Washington.
The yield on the benchmark 10-year Treasury note settled at 2.409%, compared with 2.397% Thursday and 2.496% the previous Friday.
Yields rise when bond prices fall.
After climbing for three consecutive days, bond prices began to fall Thursday after President Donald Trump signaled he would unveil a tax overhaul plan within the next three weeks.
The prospect of lower taxes was a main reason why bond yields soared after the November election, with the 10-year yield climbing to 2.6% in mid-Decemberfrom 1.867% on Election Day.
Large tax cuts for businesses and individuals could provide a boost to the economy, making bonds less attractive to investors than riskier assets. They could also spur inflation, which chips away bonds' fixed return over time and lead to larger budget deficits, which would diminish the value of outstanding government debt by increasing the supply of bonds.
Before Mr. Trump's remarks, the 10-year yield had registered its largest three-day decline since June and was closing in on its lowest level since late November.
In addition to being frustrated by the slow pace of policy-making in Washington, investors have grown concerned about political risks in Europe and in particular France, where the far-right candidate Marine Le Pen has a strong shot of making it to the second round of voting in the French presidential election.
Ms. Le Pen has threatened to pull France out of the eurozone -- a move that could destabilize financial markets and drive investors to the safety of haven debt.
Some analysts caution about reading too much into daily swings in the bond market. For the most part, Treasury yields have been fairly stable this year and are unlikely to break out their current range until investors get more "clarity from the policy front from the new White House" and the Federal Reserve, said Stanley Sun, interest rates strategist at Nomura Securities International in New York.
Bonds on Friday were also weighed down by data showing import prices rose 0.4% in January from the previous month. That was above the consensus estimate of 0.3% and another sign of slowly rising inflation.
The 10-year break-even rate, the yield premium investors demand to hold 10-year Treasury notes relative to 10-year Treasury inflation-protected securities, climbed to 2.018 percentage points Friday afternoon, up from 1.992 percentage points Thursday and 1.963 percentage points Wednesday, according to Tradeweb. That suggests investors expect an annual inflation rate of 2.018% over the next 10 years.
Next week promises to be an eventful one in the bond market. Fed Chairwoman Janet Yellen is scheduled to testify before congressional panels on Tuesday and Wednesday while new reports are released on consumer prices and retail sales.
Investors have been eager for more insight into the Fed's policy outlook in the days since the central bank delivered its last policy statement, which gave little indication about when it will next raise interest rates.
Write to Sam Goldfarb at firstname.lastname@example.org
(END) Dow Jones Newswires
February 10, 2017 15:48 ET (20:48 GMT)
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