After moving to the downside in early trading, treasuries saw considerable volatility following the Federal Reserve's monetary policy announcement but still ended the day modestly lower.
Bond prices briefly turned positive on the heels of the Fed announcement but finished the session in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.2 basis points to 1.642 percent.
The volatility seen in afternoon trading came after the Fed announced its decision to continue its program to extend the average maturity of its holdings of securities through the end of the year.
The program, known as "Operation Twist," involves replacing short-term securities in the Fed's bond portfolio with longer-term securities in an effort to push already low long-term interest rates even lower.
Rob Carnell, chief international economist at ING, said, "Most Fed watchers were expecting an extension of the Twist operation at this latest FOMC meeting. After all, the hurdle for QE3, we were previously told, was very high."
"Moreover, allowing the twist to expire, even if you believed it was essentially a useless policy (we did), was akin to a monetary tightening, albeit a tiny one," he added.
Speaking to reporters following the announcement, Fed Chairman Ben Bernanke said that the move was one of the ways the central bank could seek to boost the economy even though the most traditional policy action, the lowering of interest rates, is essentially not available.
Bernanke also noted that like many economic analysts and observers, their projections about the pace of the economic recovery had proved too optimistic.
"The committee is prepared to take further actions if appropriate," to promote the recovery and provide for "sustainable improvement in labor market conditions," he added.
Reaction to the Fed announcement may continue to impact the markets on Thursday, although traders are also likely to keep an eye on reports on initial jobless claims, existing home sales, and Philadelphia-area manufacturing activity.
by RTT Staff Writer
For comments and feedback: firstname.lastname@example.org