Treasuries Rebound Strongly Following Recent Downward Trend

(RTTNews) - After trending lower over the past several sessions, treasuries showed a notable rebound during trading on Wednesday amid the Federal Reserve's monetary policy announcement.

Bond prices moved steadily higher in morning trading before accelerating to the upside following the release of the Fed statement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slumped by 7.1 basis points to 1.860 percent.

With the significant decrease on the session, the ten-year yield pulled back well off the one-month closing high set on Tuesday.

Treasuries saw continued strength following the Fed's monetary policy announcement, which did not contain any major surprises.

As was widely expected, the Fed left its target range for the federal funds rate unchanged at 0.25 to 0.5 percent for the third straight meeting.

The central bank's accompanying statement was generally interrupted as leaving the door open for a June rate hike without making any guarantees.

Many analysts cited the Fed's decision to remove a reference to the risks posed by global economic and financial developments.

The Fed also said recent data indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed.

The central bank also reiterated that the actual path of rates will depend on the economic outlook as informed by incoming data.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "The omission of the warning about global risks leaves the door open to a June rate hike, but whether the Fed follows through will depend on what happens in financial markets over the next six weeks."

"It isn't our base case scenario, but one risk is that another slump in sentiment, like we saw last August or this February, could prompt the Fed to delay yet again the next rate hike," he added.

The Fed statement largely overshadowed a report from the National Association of Realtors showing that pending home sales rose to their highest level in almost a year in March.

NAR said its pending home sales index climbed by 1.4 percent to 110.5 in March after jumping by 3.4 percent to a revised 109.0 in February. Economists had expected pending sales to rise by 0.5 percent.

With the bigger than expected increase, the index rose to its highest level since reaching 111.0 in May of last year.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Trading on Thursday may continue to be impacted by reaction to the Fed statement, although reports on first quarter GDP and weekly jobless claims are also likely to attract attention.

Bond traders are also likely to keep an eye on the Treasury Department's auction of $28 billion worth of seven-year notes.