December 20, 2017 / 3:21 PM / a year ago

TREASURIES-Yields at nine-month highs on tax growth optimism

    * Tax reform boosts growth expectations
    * 10-year yields highest since March

    By Karen Brettell and Kate Duguid
    NEW YORK, Dec 20 (Reuters) - U.S. Treasury yields rose to
nine-month highs on Wednesday on optimism a U.S. tax overhaul
will help boost growth and as economic data improves.
    The Republican-controlled U.S. House of Representatives was
expected to give final approval to a sweeping tax bill on
Wednesday and send it to President Donald Trump to sign into
law, sealing his first major legislative victory in office. 
    Many investors expect that tax cuts will help spur
investment and spending that will boost the economy and increase
stubbornly low inflation.
    “The tax reform is really what’s been driving yields as well
as risky assets over the last few trading sessions,” said
Subadra Rajappa, head of U.S. rates strategy at Societe Generale
in New York. Also, “we’ve seen strong data, so that typically
tends to cause a selloff.”
    Yields rose on Monday after domestic home construction
unexpectedly accelerated to a 13-month high in November,
supporting the view of a solid pace of economic expansion in the
fourth quarter.             
    Benchmark 10-year notes             were last down 6/32 in
price to yield 2.483 percent, up from 2.463 percent on Monday.
The yields earlier rose to 2.497 percent, the highest since
March 21.
    The yield curve between two-year and 10-year notes
              also steepened as high as 63 basis points, the
steepest level since Nov. 30 as longer-dated notes
underperformed on growth optimism and as some traders unwound
positions that had been betting on further flattening.
    “There’s been something of a positional stop-out in the
flattening trade that’s been reasonably popular in the past few
weeks,” said Ian Lyngen, head of U.S. rates strategy at BMO
Capital Markets in New York.

 (Editing by Susan Thomas)
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