Tax proposal pulls yields back to familiar territory

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U.S. Treasury yields fell back on

Thursday on news that President Joe Biden will propose a tax

hike for high earners, after climbing in morning trading.

The benchmark 10-year yield was down less than 1

basis point for the session, at 1.5556%, after having risen

above 1.587% just after noon.

Biden will propose raising the marginal income tax rate to

39.6% from 37% and nearly doubling taxes on capital gains to

39.6% for people earning more than $1 million, sources familiar

with the matter told Reuters. The money would fund

major investments in child care and paid leave for workers.

Wall Street’s main indexes hit session lows as the tax news

hit. Guy LeBas, chief fixed income strategist for

Janney Capital Management, said Treasuries seemed to move in

step with stocks as investors bailed out of equities that would

lose some of their tax advantages for people in the top income

brackets.

LeBas cautioned, however, that the proposal faces many

hurdles and potential compromises, one reason the benchmark

yield remained well within the range between 1.528% and 1.633%

it has held since last week.

“There’s a lot of road between here and law,” he said.

Investors are looking ahead to guidance from the Federal

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Reserve’s meeting next week, on Tuesday and Wednesday, although

the U.S. central bank’s Federal Open Market Committee is not

expected to make meaningful adjustments to policy.

Fewer Americans filed new claims for unemployment benefits

last week, U.S. Labor Department data showed on Thursday,

suggesting that layoffs were subsiding and strengthening

expectations for another month of blockbuster job growth in

April as a re-opening economy unleashes pent-up demand.

Jim Vogel, FHN Financial interest rate strategist, said this

week’s relatively small movement in yields reflected investors’

focus on trading specific maturities rather than making bets

about trends across the whole yield curve while awaiting

guidance from the Fed.

“It’s more dangerous to express macro views across the bond

market, when each spot trades in its own place. It’s not a

unified market,” Vogel said.

The Biden administration on Thursday pledged to slash U.S.

greenhouse gas emissions by 50%-52% from 2005 levels by 2030, a

target it hopes will spur other big emitter countries to raise

their ambitions to combat climate change.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at 140 basis points, about a basis point lower

than its close on Wednesday.

The two-year U.S. Treasury yield, which typically

moves in step with interest rate expectations, was up less than

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a basis point at 0.1513%.

April 22 Thursday 2:22PM New York / 1822 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 0.0225 0.0228 0.000

Six-month bills 0.035 0.0355 -0.002

Two-year note 99-243/256 0.1513 0.002

Three-year note 100-42/256 0.3196 0.000

Five-year note 99-190/256 0.8033 0.003

Seven-year note 100-24/256 1.2358 -0.002

10-year note 96-24/256 1.5556 -0.008

20-year bond 95-228/256 2.1302 -0.019

30-year bond 92-12/256 2.2422 -0.021

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 12.00 0.25

spread

U.S. 3-year dollar swap 13.50 0.25

spread

U.S. 5-year dollar swap 9.25 0.50

spread

U.S. 10-year dollar swap -0.75 0.25

spread

U.S. 30-year dollar swap -27.00 0.00

spread

(Reporting by Ross Kerber in Boston; editing by Barbara Lewis

and Leslie Adler)