November 2, 2017 / 8:05 PM / 2 years ago

TREASURIES-Bonds hold gains as Powell nominated to be Fed chair

 (Recasts with Powell nomination; adds quote; updates prices)
    * Powell's nomination was already priced in by market
    * Republican tax plan seen facing challenges
    * Friday's jobs report for October in focus

    By Karen Brettell and Richard Leong
    NEW YORK, Nov 2 (Reuters) - U.S. Treasuries were little
changed on Thursday after President Donald Trump nominated
Federal Reserve Governor Jerome Powell to head the Federal
Reserve, as expected, and prices ended the day higher.
    Powell, who already sits on the U.S. central bank's board,
is seen as someone who will stick with the monetary policy
stance favored by current Chair Janet Yellen, whose term expires
in early February.             
    “The market since last week priced in Powell to be the next
Fed chair, and I think it’s going to be more or less status quo
going forward,” said Justin Lederer, an interest rate strategist
at Cantor Fitzgerald in New York.
    Benchmark 10-year notes             gained 7/32 in price to
yield 2.35 percent, down from 2.38 percent on Wednesday. The
yields are down from 2.48 percent last Friday.
    The Treasury yield curve also continued to flatten, a day
after the Treasury Department said it would keep auction sizes
steady in the coming months, despite the Fed's plan to reduce
its bond holdings.             
    The Treasury Borrowing Advisory Committee, which advises the
government on funding strategy, said Treasury bills and two-,
three- and five-year notes could be appropriate maturities for
increased issuance.
    Some investors had expected that Treasury might focus on
increasing longer-dated debt maturities.
    The yield curve between five-year notes and 30-year bonds
               flattened to as low as 82.1 basis points, the
lowest level since late 2007.
    The gap between two-year and 10-year yields               
briefly dropped to 72.8 basis points, when Powell appeared with
Trump as the president began to announce his choice for the Fed.
 It then widened back to 73.5 basis points.
    Also on Thursday, U.S. House of Representatives Republicans
unveiled long-delayed legislation to deliver deep tax cuts that
President Donald Trump has promised, though the measure is seen
facing opposition.             
    "It's going to have a hard time passing in its current
form," said Aaron Kohli, an interest rate strategist with BMO
Capital Markets in New York. "It's not clear how it's going to
be paid for."
    Thursday's bond rally was in step with lower UK yields after
the Bank of England hiked interest rates for the first time in a
decade and signaled it would adopt a gradual approach to
increase rates further.             
    Investors are next focused on Friday’s jobs report for

 (Reporting by Karen Brettell and Richard Leong; Editing by
Leslie Adler)
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