Treasuries Spike Higher In Reaction To Fed Decision

(RTTNews) - After seeing modest strength for much of the trading session on Thursday, treasuries showed a substantial move to the upside following the Federal Reserve's monetary policy announcement.

Bond prices spike higher late in the session before closing firmly in positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled 8.6 basis points to 2.217 percent.

With the steep drop on the day, the ten-year yield gave back ground after ending the previous session at its highest closing level in almost two months.

The late-day rally by treasuries came after the Fed announced its decision to leave its interest rate target range unchanged at zero to 0.25 percent.

Leading up to the announcement, economists were mixed regarding whether the central bank would raise interest rates for the first time in almost a decade.

The Fed noted the decision to leave rates at record lows was not unanimous, as Richmond Fed President Jeffrey Lacker preferred to raise rates by 25 basis points.

The central bank's statement suggested that the decision to leave rates unchanged was partly due to concerns about developments overseas, with the Fed noting that net exports have been soft.

The Fed also said recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.

Members apparently want to see further improvement in the labor market and more confidence inflation will move back to the 2 percent target before raising rates.

The projections released along with the statement suggest a few Fed members want to delay raising rates into next year, although most still continue to predict a rate hike by the end of 2015.

The Fed has two more meetings scheduled for this year, with traders likely to keep a close eye on the economic data leading up to the next meeting in late October.

Rob Carnell, chief international economist at ING, said, "We still like the idea of an October hike, as December could be made awkward by end of year liquidity issues."

Trading on Friday may continue to be impacted by reaction to the Fed decision, likely overshadowing the Conference Board's report on leading economic indicators.