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Treasuries Close Firmly Negative Even As Fed Unveils New Bond Buying Program

Treasuries came under pressure following the Federal Reserve's monetary policy announcement on Wednesday, ending the day firmly in negative territory.

After turning in a lackluster performance in morning trading, bond prices moved sharply lower on the heels of the Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4.8 basis points to 1.697 percent.

With the notable increase on the day, the ten-year yield ended the session at its highest closing level in well over a month.

The weakness among treasuries came even as the Fed announced that it will replace its "Operation Twist" program, which expires at the end of the year, with the purchase of longer-term Treasury securities at a pace of $45 billion per month.

The central bank also said it will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

In a somewhat surprising move, the Fed also set numerical targets regarding future decisions, indicating that interest rates will remain exceptionally low as long as the unemployment rate remains above 6.5 percent and inflation is projected to be below 2.5 percent.

Peter Boockvar, managing director at Miller Tabak, said, "Putting aside the possibility of sell on the news or inflation worries, it may very well be just in response to the maturity makeup of QE4 relative to what the plan was when they extended OT in July."

The Fed's monetary policy announcement largely overshadowed the results of the Treasury Department's auction of $21 billion worth of ten-year notes.

The ten-year note auction drew a high yield of 1.652 percent and a bid-to-cover ratio of 2.95, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 3.01.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Trading on Thursday could be impacted by the release of a slew of U.S. economic data, including reports on retail sales, producer price inflation, and weekly jobless claims.

Nonetheless, the impact of the data could be limited by any developments regarding the fiscal cliff negotiations in Washington.

by RTTNews Staff Writer

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