Treasuries Jump Into Positive Territory In Reaction To Fed Announcement

(RTTNews) - Treasuries saw weakness throughout much of the trading session on Wednesday but moved to the upside in reaction to the Federal Reserve's monetary policy announcement.

Bond prices jumped well off their worst levels and into positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell 2.5 basis points to 4.256 percent after reaching a high of 4.323 percent.

The turnaround by treasuries came after the Fed announced its widely expected decision to once again leave interest rates unchanged, but projections signaled the central bank is still likely to lower rates later this year.

The Fed said it decided to maintain the target range for the federal funds rate at 4.25 to 4.50 percent in support of its dual goals of maximum employment and inflation at the rate of 2 percent over the longer run.

At the Fed's last meeting in late January, the central bank also left rates unchanged after it lowered rates by a total of 100 basis points or 1.0 percentage point over the three previous meetings.

The accompanying statement noted "uncertainty around the economic outlook has increased," and the Fed said it is "attentive to the risks to both sides of its dual mandate."

With regard to the outlook for rates, Fed officials still forecast rates in a range of 3.75 to 4.0 percent by the end of the year.

The forecast was unchanged from last December and suggests the Fed is likely to cut rates by a quarter point two times later this year.

Meanwhile, Fed officials lowered their projections for GDP growth in 2025 to 1.7 percent from 2.1 percent and raised their forecasts for consumer price growth this year to 2.7 percent from 2.5 percent.

The central bank also announced it has decided to slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion beginning in April.

"The Fed indirectly cut rates today by taking action to reduce the pace of runoff of its Treasury holdings," said Jamie Cox, Managing Partner for Harris Financial Group. "The Fed has multiple things to consider in the balance of risks, and this move was one of the easiest choices."

He added, "This paves the way for the Fed to eliminate runoff by summer, and, with any luck, inflation data will be in place where reducing the Federal Funds rate will be the obvious choice."

Trading on Thursday may be impacted by reaction to a slew of U.S. economic data, including reports on weekly jobless claims, existing home sales and leading economic indicators.