Bonds News

TREASURIES-Yields drop after reports ex-adviser Flynn to testify against Trump

    * Ex-adviser Flynn to testify against Trump
    * White House says Flynn implicating himself alone
    * U.S. senator says has enough votes to pass tax bill

 (Adds comments, table, updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Dec 1 (Reuters) - U.S. Treasury yields plunged on
Friday after ABC News reported that Michael Flynn, a former
adviser to U.S. President Donald Trump, said he was prepared to
testify that Trump directed him to make contact with the
Russians when he was a presidential candidate.
    Reuters could not immediately verify the report.
    ABC News cited a confidant as saying Flynn was ready to
testify that Trump directed him to make contact with Russians
before he became president, initially as a way to work together
to fight the Islamic State group in Syria.
    This developed as Flynn on Friday pleaded guilty to lying to
the Federal Bureau of Investigation about contacts with Russia's
ambassador, and prosecutors said he consulted with a senior
official in Donald Trump's presidential transition team before
speaking to the envoy.
    The benchmark 10-year Treasury yield dropped to
a low of 2.315 percent after the news, from 2.415 percent late
on Thursday. It was last at 2.365 percent.
    U.S. 30-year bond yields plunged to 2.716
percent, the lowest since Sept. 11, from Thursday's 2.831
percent. In late afternoon trading, the 30-year yield was 2.757
    The ABC report overshadowed news that U.S. Senate
Republicans on Friday had gathered the votes needed to pass a
sweeping tax overhaul, according to Senate Republican leader
Mitch McConnell. The votes came after last-minute negotiations
to ease concerns about the bill's impact on the federal deficit,
healthcare and property taxes.
    The Senate bill news had little impact on the Treasuries
given the Flynn drama.
    "This news (Flynn) comes just as the President was getting
traction on his tax bill so the timing of this could well be
damaging not only for the president himself but for the future
of that tax bill," said James Hughes, chief market analyst at
AxiTrader in London.
    Soon after the Flynn news broke, the White House issued a
statement saying the former adviser's guilty plea on Friday
implicated him alone. 
    "The speed of the White House statement surely shows the
severity of the situation. It's likely to be an uncomfortable
weekend for President Trump," Hughes said.
    The market has been focused on tax reform this week, with
yields tracking the highs and lows of the bill as lawmakers
battled over it.
    Just before the Flynn news came out, yields were higher on
the day, with the market optimistic a U.S. Senate tax bill would
      Friday, Dec. 1 at 1607 EST (2107 GMT): 
 US T BONDS MAR8               153-6/32     1-15/32   
 10YR TNotes MAR8              124-96/256   0-84/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.245        1.2661    -0.003
 Six-month bills               1.415        1.4448    0.000
 Two-year note                 99-242/256   1.7781    -0.012
 Three-year note               99-156/256   1.8867    -0.016
 Five-year note                99-114/256   2.1177    -0.026
 Seven-year note               99-12/256    2.2732    -0.042
 10-year note                  98-252/256   2.3651    -0.050
 30-year bond                  99-196/256   2.7615    -0.070
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        18.50         0.00    
 U.S. 3-year dollar swap        18.00        -0.25    
 U.S. 5-year dollar swap         5.75         0.00    
 U.S. 10-year dollar swap       -0.25         0.50    
 U.S. 30-year dollar swap      -21.50         1.50    
 (Reporting by Gertrude Chavez-Dreyfuss; additional reporting by
Sinead Carew; editing by Diane Craft)