Treasuries Close Firmly Positive Following Fed Announcement

(RTTNews) - Treasuries moved notably higher during trading on Wednesday as the Federal Reserve's decision to continue tapering matched economist estimates.

After seeing modest strength for much of the day, bond prices accelerated to the upside following the Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 7.1 basis points to 2.675 percent.

The drop on the day extended a recent downward trend by the ten-year yield, which hits its lowest closing level in over two months.

Treasuries moved higher even as the Fed announced plans to scale back its bond purchases by another $10 billion to $65 billion a month.

Bond traders seemed to react positively to the fact that the move matched expectations and will likely weigh on emerging market assets.

In the accompanying statement, the Fed said growth in economic activity picked up in recent quarters. The central bank also said labor market indicators were mixed but on balance showed further improvement.

Much of the remainder of the statement was unchanged from December, with the Fed reiterating that it will likely be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5 percent.

Paul Ashworth, Senior U.S. Economist at Capital Economics, said, "Despite last minute suggestions in some quarters that the emerging markets wobble could prompt a delay, the Fed opted to continue the gradual winding down of its asset purchases."

"In short, we're still on the course mapped out by departing Fed Chair Ben Bernanke in his December press conference, which would see the asset purchases eliminated entirely by late this year," he added.

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, although reports on fourth quarter GDP, weekly jobless claims, and pending home sales are also likely to attract attention.

Bond traders are also likely to keep an eye on the results of the Treasury Department's auctions of both five-year and seven-year notes.