Treasuries Close Modestly Higher In Reaction To Fed Statement

(RTTNews) - After seeing moderate weakness earlier in the session, treasuries turned higher in reaction to the Federal Reserve's monetary policy announcement.

Bond prices spiked higher following the release of the Fed statement but pulled back off their highs going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 2.1 basis points to 1.938 percent.

The higher close by treasuries came after the Fed announced its widely expected to leave interest rates unchanged in a range from 0.25 percent to 0.50 percent.

In its accompanying statement, the Fed said data received since the previous meeting in January suggests economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months.

The Fed also said inflation has picked up in recent months but noted that it continues to run below the 2 percent target due to declines in energy prices and in prices of non-energy imports.

Looking ahead, the central bank said it expects economic activity to expand at a moderate pace and labor market indicators to continue to strengthen, although it said global economic and financial developments continue to pose risks.

The Fed's revised forecast for interest rates shows that officials expect rates to be lower at the end of the year than predicted in December.

The new median projection calls for rates at 0.9 percent at the end of the year, down from the previous estimate of 1.4 percent.

Steve Murphy, U.S. Economist at Capital Economics, said, "That new projection now means that officials now expect two rate hikes this year, rather than four back in December."

"The end-2017 forecast was revised down to 1.9%, from 2.4% while projections at end-2018 were revised down to 3.0%, from 3.3%," he added.

The Fed statement largely overshadowed the economic data released earlier in the day, including reports showing a jump in housing starts but a bigger than expected drop in industrial production.

While trading on Thursday may continue to be impacted by reaction to the Fed statement, traders are also likely to keep an eye on reports on weekly jobless claims, leading economic indicators, and Philadelphia-area manufacturing activity.