By Sam Goldfarb 

U.S. government bonds were struggling for direction Wednesday as investors waited for President Donald Trump to release his blueprint for a tax overhaul.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.332%, according to Tradeweb, compared with 2.330% Tuesday. Yields rise as bond prices fall.

The prospect of a tax-code overhaul, including a large reduction in the corporate tax rate, was a major impetus behind the so-called Trump trade, which swept financial markets after last November's election. Betting that expansionary fiscal policies could boost growth and inflation, investors bought riskier assets such as stocks and commodities and sold safe-haven assets including bonds, sending the yield on the 10-year note as high as 2.6% in mid-December from 1.867% on Election Day.

The Trump trade has sometimes shown signs of fading, with investors growing skeptical that Congress could pass a tax overhaul. After reaching 2.6% again in March, the 10-year yield fell to a five-month low of 2.177% last week, reflecting lowered expectations for fiscal stimulus, as well as a tight presidential race in France and heightened geopolitical tensions.

This week, investors have regained some of their risk-appetite, pushing yields higher. Following a first-round victory on Sunday, the centrist French presidential candidate Emmanuel Macron has emerged as a clear favorite heading into the final round of voting on May 7, dimming concerns that France could elect an anti-European Union candidate who would threaten the future of the eurozone.

Investors have also seized on some of the details of Mr. Trump's tax plan, which is expected to be released later Wednesday. Treasury Secretary Steven Mnuchin said Wednesday that the plan would be "the biggest tax cut and largest tax reform in the history of our country." That followed reports that the plan would slash the corporate tax rate to 15% from 35%.

Still, the bond market's reaction to the emerging tax proposal has been relatively modest, with investors hesitant to sell Treasurys before there is more evidence that it could become law, said Aaron Kohli, interest-rate strategist at BMO Capital Markets.

There is "not a whole lot of reason to believe why any major part" of Mr. Trump's plan will be passed by Congress, ensuring that "the broad tone is still very bullish in the Treasury market," he added.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

 

(END) Dow Jones Newswires

April 26, 2017 11:15 ET (15:15 GMT)

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