US Treasury yields plunged on Friday after ABC News reported that Michael Flynn, a former adviser to US 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. US 30-year bond yields plunged to 2.716 percent, the lowest since September 11, from Thursday's 2.831 percent. In late afternoon trading, the 30-year yield was 2.757 percent. The ABC report overshadowed news that US 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.
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