Treasuries moved higher over the course of the trading session on Wednesday, as traders reacted to the Federal Reserve’s widely anticipated interest rate hike.
Bond priced reached new highs late in the session, closing firmly in positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 5.3 basis points to 2.734 percent.
The ten-year yield extended a recent downward trend, ending the session at its lowest closing level in well over three months.
The advance by treasuries came after the Fed announced its decision to raise the target range for the federal funds rate by 75 basis points to 2.25 to 2.50 percent in an effort to achieve its dual goals of maximum employment and inflation at a rate of 2 percent over the longer run.
The latest rate hike follows another 75 basis point increase in rates last month and marks the fourth straight central bank meeting that has resulted in a rate hike.
In its accompanying statement, the Fed reiterated that it anticipates that ongoing increases in the target range will be appropriate.
Treasuries benefited from comments in Fed Chair Jerome Powell’s post-meeting press conference hinting at a slowdown in the pace of rate hikes at future meetings.
“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” Powell said.
The Fed’s next monetary policy meeting is scheduled for September 20-21, with CME Group’s FedWatch tool currently indicating a 59.2 percent chance of a 50 basis point rate hike and a 36.7 percent chance of another 75 basis points rate hike.
“With rates now close to the Fed’s estimate of neutral, the economy clearly showing signs of a slowdown in the face of rising rates and inflation set to fall in July, we suspect the Fed will shift back to smaller hikes from here, with a 50bp hike in September the most likely option,” said Michael Pearce, Senior U.S. Economist at Capital Economics.
As a result of the focus on the Fed, traders largely shrugged off separate reports showing an unexpected jump in durable goods orders and a much bigger than expected pullback in pending home sales.
A preliminary reading on second quarter GDP is likely to attract attention on Thursday along with the weekly jobless claims data.
Bond traders are also likely to keep an eye on the results of the Treasury Department’s auction of $38 billion worth of seven-year notes.
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