Treasuries Move Sharply Higher In Reaction To Fed Announcement

With traders reacting positively to the Federal Reserve’s monetary policy announcement, treasuries moved sharply higher during trading on Wednesday.

Bond prices moved to the upside early in the session and saw an additional surge following the Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, plunged 17.3 basis points to 4.033 percent.

With the substantial decrease on the day, the ten-year yield ended the session at its lowest closing level in over four months.

The rally by treasuries came after the Fed announced its widely expected decision to leave interest rates unchanged while also confirming it plans to pivot to cutting rates next year.

In support of its dual goals of maximum employment and inflation at the rate of 2 percent over the longer run, the Fed said it decided to maintain the target range for the federal funds rate at 5.25 to 5.50 percent.

The accompanying statement said the decision came as economic growth has slowed from its strong pace in the third quarter, while inflation has eased over the past year.

The projections provided by the Fed also suggest the central bank will begin cutting rates next year, with the median forecast indicating rates will be lowered to 4.6 percent by the end of 2024.

The median forecast points to rates in a range of 4.50 to 4.75 percent, hinting the Fed plans to cut rates by 25 basis points three times next year.

Following the September meeting, the Fed had forecast raising rates by another 25 basis points this year before lowering rates to a range of 5.0 to 5.25 percent by the end of 2024.

“Additional rate hikes no longer appear to be part of the conversation,” said Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni. “It is all about the pace of cuts from here.”

During his post-meeting press conference, Fed Chair Jerome Powell acknowledged that rate cuts will be a “topic of discussion” at upcoming meetings.

Reaction to the Fed announcement may continue to impact trading on Thursday, while traders are also likely to keep an eye on reports on weekly jobless claims, retail sales and import and export prices.

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