Treasuries Move To The Downside Following Fed Announcement

After showing a lack of direction for much of the session on Wednesday, treasuries moved lower following the Federal Reserve’s monetary policy announcement.

Bond prices climbed off their worst levels going into the close but remained in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.5 basis points to 1.463 percent.

The weakness among treasuries came after the Fed announced its widely expected decision to accelerate the pace of reductions to its asset purchases program.

Citing inflation developments and further improvement in the labor market, the Fed said it has decided to reduce the monthly pace of its net asset purchases by $30 billion per month, double the previously announced $15 billion per month.

Beginning in January, the Fed will increase its holdings of Treasury securities by at least $40 billion per month and of agency mortgage-backed securities by at least $20 billion per month.

The $60 billion per month is asset purchases is half the $120 billion per month the Fed bought from June 2020 to October 2021.

The Fed said it expects similar reductions in the pace of net asset purchases will likely be appropriate each month, pointing to an end to the program next March.

Meanwhile, the Fed also announced its widely expected decision to keep the target range for the federal funds rate at zero to 0.25 percent.

The Fed noted inflation has exceeded its 2 percent target for some time but predicted interest rates will remain at near-zero levels until labor market conditions have reached levels consistent with its assessments of maximum employment.

The central bank’s latest projections forecast as many three rate hikes in 2022 compared to the lone rate hike forecast in September.

With the focus on the Fed, traders largely shrugged off some key U.S. economic data, including a Commerce Department report showing retail sales rose by much less than expected in November.

Reaction to the Fed announcement may continue to impact trading on Thursday, although traders are also likely to keep an eye on reports on weekly jobless claims, housing starts and industrial production.

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