Treasuries Move Higher Amid Sell-Off On Wall Street

After ending the previous session nearly unchanged, treasuries showed a moderate move to the upside during trading on Wednesday.

Bond prices moved higher early in the session and remained positive throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.6 basis points to 1.014 percent.

The strength among treasuries came as stocks on Wall Street moved sharply lower amid concerns about the impact of new, more contagious coronavirus strains along with uncertainty about the prospects for a new relief package.

Traders were also worried about recent speculative trading by retail investors amid continued spikes by heavily shorted stocks like GameStop (GME) and AMC Entertainment (AMC).

The sell-off on Wall Street increased the appeal of safe havens such as bonds, although buying interest was somewhat subdued ahead of the Federal Reserve’s monetary policy announcement.

Treasuries remained positive following the announcement, with the Fed leaving interest rates unchanged as widely expected and revealing it plans to maintain its asset purchase program at the current pace.

The Fed said it decided to keep the target range for the federal funds rate at zero to 0.25 percent and once again said it expects to leave rates at near-zero levels until labor market conditions reach levels consistent with maximum employment and inflation is on track to moderately exceed 2 percent.

The more closely watched section of the Fed’s accompanying statement revealed that the central bank plans to continue purchasing bonds at a rate of at least $120 billion per month.

The statement reiterated the assertion first made last month, when the Fed said it will maintain asset purchases at the current rate until “substantial further progress” has been made toward its goals of maximum employment and price stability.

“We don’t expect the Fed to begin tapering its asset purchases until early next year and think the first rate hike could be delayed until 2024,” said Paul Ashworth, Chief U.S. Economist at Capital Economics.

In one of the few changes to the statement, the Fed said pace of the economic recovery has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the ongoing coronavirus pandemic.

Looking ahead, trading on Thursday may be impacted by reaction to reports on initial jobless claims, new home sales and leading economic indicators.

Bond traders are also likely to keep an eye on the results of the Treasury Department’s auction of $62 billion worth of seven-year notes.

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