Treasuries Close Firmly In The Red After Fed Announces Tapering

(RTTNews) - After lingering in negative territory for much of the session, treasuries saw considerable volatility following the Federal Reserve's tapering announcement before closing lower.

Bond prices moved to the downside going into the close, ending the day firmly in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4.2 basis points to 2.885 percent.

With the increase on the day, the ten-year yield reached its highest closing level in three months.

The lower close by treasuries came after the Federal Reserve announced that it is reducing its asset purchase program by $10 billion a month beginning in January.

Following its two-day policy meeting, the Fed said it will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month and add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.

The central bank attributed the decision to the improvement in economic activity and labor market conditions seen since it began the stimulus program.

Looking ahead, the Fed said it will further reduce the pace of asset purchases at future meetings if incoming data supports its expectations regarding the labor market and inflation, although it noted that asset purchases are not on a preset course.

The Fed also said it will likely be appropriate to keep rates at near-zero well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the bank's 2 percent longer-run goal.

The vote in favor of tapering was 9 to 1, with Boston Fed President Eric Rosengren dissenting amid concerns that reducing the pace of asset purchases is premature until incoming data more clearly indicate that economic growth is likely to be sustained.

While trading on Thursday may continue to be impacted by reaction to the Fed announcement, reports on weekly jobless claims, existing home sales, and Philadelphia-area manufacturing activity may also attract some attention.