Treasuries saw considerable volatility following the Federal Reserve's monetary policy announcement, eventually ending the session notably lower.
After seeing modest weakness for much of the session, bond prices showed big swings after the Fed announcement before closing in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4.7 basis points to 1.539 percent.
The volatility seen after the Fed announcement came as the central bank offered a sobering assessment of the U.S economy but refrained from revealing any new stimulus measures.
"Economic activity decelerated somewhat over the first half of this year," the Fed said in a statement, adding, "Growth in employment has been slow in recent months, and the unemployment rate remains elevated."
The Commerce Department announced last week that the U.S. economy grew just 1.5 percent in the second quarter, even slower than the 2 percent rate of growth in the first quarter of the year.
Having already taken unprecedented measures to support the sluggish recovery, the Fed said it will "closely monitor" incoming data for evidence that the economy is taking a more serious turn for the worse.
In failing to take aggressive action to prop up the slowing economy, analysts say the Fed is preserving ammunition to combat potential headwinds that may arise out of Europe's sovereign debt crisis.
Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Despite acknowledging the evident slowdown in U.S. economic growth, the Fed declined to take any additional action at the conclusion of the two-day FOMC meeting."
"It did, however, offer the slightest of hints that it might be prepared to do more at the next meeting in mid-September," he added.
With the Fed meeting now in the rearview mirror, traders will turn their attention to the European Central Bank's monetary policy announcement on Thursday.
Following ECB President Mario Draghi's recent remarks promising to do whatever is necessary to support the beleaguered eurozone, the bank is widely expected to announce further stimulus measures.
The news out of Europe is likely to overshadow the release of U.S. reports on weekly jobless claims and factory orders.
by RTT Staff Writer
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