Treasuries Rally Despite Interest Rate Hike

After ending the previous session modestly higher, treasuries showed a strong move to the upside during trading on Wednesday.

Bond prices rallied going into the close of trading, ending the day firmly positive. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 13.2 basis points to 3.397 percent.

The late-day strength among treasuries came even as the Federal Reserve announced its widely expected decision to raise interest rates by another quarter point and signaled further rate hikes.

After a two-day meeting, the Fed said it has decided to raise the target range for the federal funds rate by 25 basis points to 4.50 to 4.75 percent.

The latest interest rate hike comes after the central bank raised rates by 75 basis points in November and by 50 basis points in December.

The Fed also said it anticipates ongoing increases in interest rates will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.

During his post-meeting press conference, Fed Chair Jerome Powell said the central bank does not believe rates are yet at a sufficiently restrictive policy stance and suggested a “couple of more rate hikes” will be needed to get to that level.

The next monetary policy meeting is scheduled for March 21-22, with CME Group’s FedWatch Tool currently indicating an 81.8 percent chance the Fed will raise rates by another 25 basis points.

Ahead of the Fed announcement, payroll processor ADP released a report showing private sector job growth slowed by more than expected in the month of January.

ADP said private sector employment climbed by 106,000 jobs in January after surging by an upwardly revised 253,000 jobs in December.

Economists had expected private sector employment to increase by 178,000 jobs compared to the addition of 235,000 jobs originally reported for the previous month.

A separate report released by the Institute for Supply Management showed activity in the U.S. manufacturing sector contracted for the third consecutive month in January.

The ISM said its manufacturing PMI dipped to 47.4 in January from 48.4 in December, with a reading below 50 indicating a contraction. Economists had expected the index to edge down to 48.0.

Trading on Thursday may continue to be impacted by reacted to the latest Fed decision, while traders are also likely to keep an eye on reports on weekly jobless claims, labor productivity and factory orders.

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