US Treasury yields fell on Friday as investors worried that allegations against US President Donald Trump would disrupt efforts to cut taxes and increase spending. The Washington Post on Friday reported that a legal investigation into possible coordination between the Trump campaign and Russia includes a person of interest that is a current White House official. Trump on Thursday denied asking former FBI Director James Comey to drop a probe into his former national security adviser, Michael Flynn, and Russia.
"The bigger concern about Trump is the derailing of the Trump agenda," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
A White House official said on Friday that Trump will propose $200 billion in infrastructure spending over 10 years in his first budget on Tuesday. Benchmark 10-year note yields were unchanged on the day at 2.23 percent, after earlier rising as high as 2.26 percent. The yields fell as low as 2.18 percent on Thursday, their lowest since April 19. The Fed is expected to raise rates when it meets in June. Traders are not pricing in additional increases, though, as investors are reluctant to take short positions.
"The risk of getting completely crushed by an unexpected headline, or a leaked tape or memo is too great. I think that is keeping a lot of investors on the sidelines," said Goldberg. Futures traders are pricing in a 74 percent chance of a June rate hike, but only a 42 percent likelihood of two or more rate increases by year-end, according to the CME Group's FedWatch Tool. Softening economic data in recent weeks has also reduced some expectations of a more aggressive Fed. The Treasury will sell $88 billion in coupon-bearing supply next week, including $26 billion in two-year notes on Tuesday, $34 billion in five-year notes on Wednesday and $28 billion in seven-year notes on Thursday.
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