Treasuries Close Modestly Lower Following Fed Announcement

(RTTNews) - After seeing modest strength for much of the trading session on Wednesday, treasuries came under pressure following the Federal Reserve's monetary policy announcement to end the day in the red.

Bond prices pulled back sharply following the release of the Fed statement but closed well off their worst levels. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged up by 1.1 basis points to 2.60 percent.

The modestly lower close by treasuries largely reflected a negative reaction to the Fed's latest interest rate projections, which suggest that officials expect rates to be raised faster than previous anticipated.

According to the latest projections, the median estimate calls for the federal funds rate to be at 1.375 percent by the end of 2015 compared to the median projection of 1.125 percent in June.

The median projection for the federal funds rate at the end of 2016 also climbed to 2.875 percent from 2.50 percent.

For bond traders, the new projections seemed to overshadow the fact that the Fed reiterated its pledge to keep interest rates low for a "considerable time" as well as its assessment that "there remains significant underutilization of labor resources."

The Fed also announced its widely anticipated decision to scale back its asset purchase program by another $10 billion to just $15 billion per month. The central bank said it still expects to end the program at its next meeting.

The vote for the monetary policy action was 8 to 2, with Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher dissenting due to objections to the interest rate guidance.

Peter Boockvar, chief market analyst at the Lindsey Group, said, "Bottom line, we can easily argue that the statement was dovish as the two key wordings were left in but the Dot forecasts are more hawkish and that is what the bond market is responding to."

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, although traders are also likely to keep an eye on reports on jobless claims, housing starts, and Philadelphia-area manufacturing activity.