Treasuries Stage Notable Rebound Following Fed Statement

(RTTNews) - After coming under pressure in early trading, treasuries showed a notable recovery in response to the Federal Reserve's monetary policy announcement.

Bond prices climbed well off their early lows, eventually ending the day modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1 basis point to 2.593 percent after reaching a high of 2.702 percent.

The early weakness among treasuries was partly due to uncertainty ahead of the Fed announcement as well as better than expected reports on private sector employment and second quarter GDP.

However, treasuries showed a strong move to the back upside after the Federal Reserve released its post-meeting statement.

As was widely expected, the Fed announced that it is leaving interest rates as well as the size of its asset purchase program unchanged.

Treasuries likely benefited from what was seen as a dovish twist regarding the central bank's assessment of the economy, which was said to be expanding at a "modest pace" in the first half of the year. At its June meeting, the Fed said activity had been expanding at a "moderate pace."

The Fed also noted that inflation persistently below its 2 percent objective could pose risks to economic performance, although it noted that inflation is expected to move higher over the medium term.

The central bank did not specifically mention the outlook for its asset purchase program, which many economists expect to be scaled back at the next meeting in September.

"We had suspected that the Fed would not want to pre-commit to a September taper and they clearly don't here," said James Knightley, senior economist at ING. "There are still uncertainties over the outlook for growth, most notably the threat of the fiscal/debt ceiling debate hurting sentiment and prompting a weaker period of activity as happened in 2011."

He added, "So while the market continues to anticipate a September taper, we still see the potential for this to be delayed until December and possibly even beyond that."

While trading on Thursday may continue to be impacted by reaction to the Fed statement, traders will also be presented with reports on weekly jobless claims, manufacturing activity, and construction spending.