Treasuries Move To The Downside Following Fed Announcement

(RTTNews) - After showing a lack of direction for much of the day, treasuries came under pressure following the Federal Reserve's monetary policy announcement on Wednesday.

Bond prices showed a notable move to the downside but climbed off their worst levels going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.4 basis points to 2.277 percent.

With the increase on the day, the ten-year yield extended the upward trend seen in recent sessions, reaching its highest closing level in over a month.

The weakness among treasuries came after the Fed left interest rates unchanged as widely expected but signaled another rate hike is likely this year.

The Fed's projections pointed to a quarter basis point rate increase later this year, with the rate hike widely expected to come at the December meeting.

"We had suspected that the recent softness of core inflation could persuade officials to hold off on the next rate hike until next year," said Andrew Hunter, U.S. economist at Capital Economics.

He added, "Given these latest projections and the broadly unchanged language on inflation in today's policy statement, we now expect the Fed to push on and raise rates again in December."

The Fed also revealed that it will begin shrinking its $4.5 trillion balance sheet in October, initially allowing $10 billion in bonds to roll off each month.

In her subsequent press conference, Fed Chair Janet Yellen said the process of winding down the balance sheet will be gradual and predictable.

With the focus on the Fed, traders shrugged off a report from the National Association of Realtors showing an unexpected decrease in existing home sales in the month of August.

NAR said existing home sales slumped by 1.7 percent to an annual rate of 5.35 million in August after tumbling by 1.3 percent to a rate of 5.44 million in July.

The continued decrease surprised economists, who had expected existing home sales to edge up to an annual rate of 5.46 million.

With the unexpected decrease, existing home sales fell to their lowest annual rate since hitting 5.34 million last August.

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, although traders are also likely to keep an eye on reports on weekly jobless claims and Philadelphia-area manufacturing activity.