Treasuries moved sharply higher during trading on Wednesday in reaction to the Federal Reserve’s monetary policy announcement.
After seeing some early strength, bond prices accelerated 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, plunged by 10.7 basis points to 1.951 percent.
With the steep drop on the day, the ten-year yield extended its recent downtrend, falling to its lowest closing level in over a month.
The rally by treasuries came as traders seemed to view the Fed’s statement as dovish regarding the outlook for interest rates.
As was widely expected, the statement no longer included the central bank’s pledge to remain “patient” regarding normalizing monetary policy.
However, the Fed noted that economic growth has moderated somewhat and stressed that it remains unlikely to raise interest at its April meeting.
In her subsequent press conference, Fed Chair Janet Yellen noted that removing the word patient from the statement doesn’t mean the central bank is going to be impatient.
The Fed also lowered its forecasts for GDP growth over the next three years as well as its outlook for interest rates at the end of this year.
The median projection for the mid-point of the fed funds target range at the end of 2015 is now 0.63 percent, down from the 1.13 percent projection made in December.
Paul Ashworth, Chief U.S. Economist at Capital Economics, said, “Although the Fed dropped its pledge that it could be ‘patient’ in beginning to normalize monetary policy, paving the way for a June lift-off, the substantial downgrades to the interest rate forecasts made by Fed officials explain the knee-jerk rally in the Treasury market.”
While reaction to the Fed may continue to impact trading on Thursday, traders will also be presented with reports on weekly jobless claims, leading economic indicators, and Philadelphia-area manufacturing activity.
The material has been provided by InstaForex Company – www.instaforex.com