Treasuries Rebound, Close Modestly Higher In Reaction To Fed Announcement

(RTTNews) - After drifting lower throughout much of the session leading up to the Federal Reserve announcement, treasuries spiked higher going into the close.

Bond prices jumped well off their worst levels of the day to end the session modestly higher. As a result, the yield on the benchmark ten-year note, edged down by 1.2 basis points to 2.306 percent after reaching a high of 2.403 percent.

The ten-year yield closed lower for the fourth time in five sessions, pulling back further off the eight-month closing high set last Wednesday.

The substantial rebound by treasuries came in reaction to the Federal Reserve's highly anticipated monetary policy announcement.

The Fed left interest rates unchanged, as was widely expected, and reiterated that the outlook for rates will be data dependent.

Regarding the economy, the central bank said recent data suggests that economic activity has been expanding moderately after having changed little during the first quarter.

Reflecting the sluggishness in the first quarter, the Fed downwardly revised its forecast for GDP growth in 2015 to 1.8 percent to 2.0 percent.

The Fed's dot plot projections continued to imply two quarter-point rate hikes this year, although the projections for the end of 2016 and 2017 were both lowered.

Michael Gregory, Deputy Chief Economist at BMO Capital Markets, said, "The flatter trajectory reflects the hawks' now lower starting points and, importantly, a greater conviction among the doves that the policy normalization process is going to be very gradual."

"Bottom line: We have been forecasting for a while that the Fed will start to hike rates in September, at a quarter-per-quarter cadence through the end of next year," he added. "We are sticking to our call, particularly since the FOMC now seems to have come around to it as well."

While trading on Thursday may continue to be impacted by reaction to the Fed, traders are also likely to keep an eye on reports on jobless claims, consumer prices, and Philadelphia-area manufacturing.