US government bonds advance on Republican tax plans

Dow Jones – US government bonds gained ground as investors assessed the impact of a Republican plan to overhaul the US tax code.

The yield on the benchmark 10-year U.S. Treasury note fell to 2.347%, the lowest close in two weeks, from 2.378% Wednesday. Bond yields fall as prices rise.

Bond yields had risen last week as investors speculated that Republicans would propose measures that were stimulative to the economy, and which would lead to significantly larger budget deficits. The plan, as detailed Thursday, would slice the top corporate tax rate to 20% from 35%.

Many investors, however, were surprised that the plan left the top bracket for individuals at 39.6%, as they had expected a lower top rate to provide more economic stimulus. The proposal also included curbs on some popular individual deductions, including on mortgage interest, which may restrain growth of the budget deficit.

"The tax package is a lot weaker than people expected," said Andrew Brenner, head of global fixed income at National Alliance Capital Markets. "They're trying to get the out-year deficits down, and the Treasury market is responding positively."