Treasuries Close Modestly Higher Following Fed Announcement

(RTTNews) - As is typically the case, treasuries saw considerable volatility in reaction to the Federal Reserve's monetary policy announcement on Wednesday.

Bond prices bounced back and forth across the unchanged line before eventually closing modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 2 basis points to 1.668 percent.

The higher close by treasuries came after the Fed left interest rates unchanged as expected but signaled that a rate hike is likely before the end of the year.

The statement from the Fed said the case for an increase in the federal funds rate has strengthened but that the central bank decided to wait for additional data for "the time being."

While the Fed said economic growth has picked up from the modest pace seen in the first half of the year, it noted that inflation continues to run below the two percent target.

Reflecting division within the committee, Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren voted to raise rates by a quarter point.

Nonetheless, the updated forecasts provided by the Fed indicated that fourteen of seventeen members expect at least one rate hike by the end of the year.

"So a December hike looks extremely likely right now, barring the politics - but with the Presidential race looking closer and closer, there is still a chance of further delay," said Rob Carnell, ?Chief International Economist at ING.

Earlier in the day, traders were reacting to the Bank of Japan's decision to modify its existing policy framework in order to achieve its inflation target.

"With a view to achieving the price stability target of 2 percent at the earliest possible time, the bank decided to introduce 'QQE with yield curve control,'" the Bank of Japan said.

Accordingly, the Japanese central bank will control short-term and long-term interest rates and expand the monetary base until inflation exceeds 2 percent.

The BoJ will continue applying a negative interest rate of -0.1 percent to the policy rate balances in current accounts held by financial institutions.

Reaction to the Fed announcement may continue to impact trading on Thursday, although traders will also be presented with several U.S. economic reports.

Traders are likely to keep an eye on the reports on weekly jobless claims, existing home sales, and leading economic indicators.