NEW YORK, Dec 1 (Reuters) - U.S. Treasury yields fell on Friday as the likelihood of a wide-ranging tax cut passing the U.S. Senate seemed more in doubt as Senate Republicans grappled with bringing down the cost of the bill.
The tax cut, supported by President Donald Trump, is expected to boost growth and inflation, driving down the value of already held bonds.
While bond prices, which move inversely to yields, initially sank after Trump’s November victory, market participants have grown weary of the president’s ability to push his agenda through congress, despite both chambers being controlled by fellow Republicans.
News that longtime Senator John McCain would support the tax plan pushed yields to fresh months- and years-long highs on Thursday, but retreated from those levels as traders swooped in to buy after the knee-jerk selloff, analysts said.
On Friday, senators were wrangling with how to raise $350 billion or more in taxes over 10 years to prevent their legislation from ballooning the deficit.
“The delayed vote is being reported as a ‘snag’ or ‘speedbump,’ but it could be a whole lot worse than that,” said FTN Financial Chief Economist Chris Low in a note to clients.
Benchmark 10-year Treasury notes rose 6/32 in price to yield 2.39 percent.
The yield curve flattened with the spread between 5- and 30-year maturities sinking to its lowest since Nov. 22.
The spread between yields of short- and long-dated maturities has compressed as investors price in the expectation that the Federal Reserve will continue to raise U.S. overnight interest rates, but long-term inflation expectations have remained low. Global demand for yield also has supported longer-dated debt. (Editing by Bernadette Baum)