Following the Federal Reserve’s widely expected decision to raise interest rates, treasuries closed notably higher during trading on Wednesday.
Bond prices saw modest strength for much of the day before seeing further upside on the heels of the Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.1 basis points to 3.061 percent.
The higher close by treasuries came after the Fed announced its decision to raise the target range for the federal funds rate to 2 to 2.25 percent, citing realized and expected labor market conditions and inflation.
The accompany statement said data received since the Fed’s August meeting indicates the labor market has continued to strengthen and that economic activity has been rising at a strong rate.
The central bank also reiterated that average job gains have been strong in recent months and noted annual inflation remains near 2 percent.
Treasuries seemed to benefit from the fact that the Fed’s projections for future rate hikes were largely unchanged from June.
The Fed’s projections for future rate hikes points to one more increase in rates this year and three rate hikes next year.
The outlook for GDP growth in 2018 was upwardly revised to 3.1 percent from 2.8 percent, while the median projection for GDP growth in 2019 inched up to 2.5 percent from 2.4 percent.
“Our view is that the Fed will press ahead with gradual rate hikes for now, but that officials are still underestimating just how quickly the economy is likely to lose momentum next year, as the fiscal boost fades and monetary tightening bites,” said Michael Pearce, Senior U.S. Economist at Capital Economics.
He added, “As economic growth slows below its potential rate around the middle of next year, we expect the Fed to call time on rate hikes and ultimately begin cutting rates by early 2020.”
Trading on Thursday may continue to be impacted by reaction to the Fed announcement along with the release of a slew of U.S. economic data.
Reports on durable goods orders, second quarter GDP, weekly jobless claims, and pending home sales may impact trading on the day.
Bond traders are also likely to keep an eye on the results of the Treasury Department’s auction of $31 billion worth of seven-year notes.