But at the center of the bond market's worry is Trump's tax reform package that could get derailed once again. Trump on Wednesday unveiled a one-page plan proposing deep tax cuts, many for businesses, that would make the federal deficit balloon if enacted, far short of comprehensive reforms both parties in Washington have sought for years.
"Trump is proposing massive tax cuts and there is no indication that they would be revenue-neutral," said Marvin Loh, senior fixed income strategist, at BNY Mellon in Boston. "Again, tax reform is all well and good, but that's like aiming for world peace. How do you get it done?" In late trading, benchmark 10-year notes were up 4/32 in price to yield 2.294 percent, down from 2.311 percent late Wednesday. US 30-year bond prices rose 4/32, yielding 2.962 percent, lower than Wednesday's 2.97 percent.
Russia's warnings that the North Korean situation has gotten a lot worse also drove bids for Treasuries. On the front end of the curve, US two-year yields were at 1.257 percent, down from Wednesday's 1.278 percent. A surprisingly robust US 7-year note auction, showing record high demand from indirect bidders, mainly foreign central banks, underpinned Treasuries as well. Indirect bidders took 81.7 percent of the paper, well-above the takedown seen in March of 71.1 percent and the 65.4 percent average.
The yield was much lower than the expected level at the bid deadline, with a strong bid-to-cover ratio of 2.73, higher than the 2.56 last month, and the 2.53 average. "The stats were off-the-charts strong," said Aaron Kohli, rates strategist at BMO Capital Markets in New York. "The looming threat of a government shutdown helped to rob the 7-year of any concession but also did provide a solid amount of momentum for the belly," he added.
Post-auction, US 7-year notes were up 4/32 in price, yielding 2.095 percent, down from Wednesday's 2.115 percent. On Friday, investors await the first estimate of US gross domestic product for the first quarter, with a Reuters poll showing a rise of 1.2 percent.