After seeing modest strength for much of the trading session on Wednesday, treasuries spiked higher in reaction to the Federal Reserve's widely expected decision to raise interest rates.
Bond prices jumped on the heels of the Fed announcement before closing firmly in positive territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 8.7 basis points to 2.508 percent.
With the steep drop, the ten-year yield continued to give back ground after reaching its highest closing level in well over two years on Monday.
The sharply higher close by treasuries came after the Fed announced its decision to raise the target range for the federal funds rate by 25 basis points to 0.75 to 1 percent.
A statement from the Fed said the decision to raise rates came in light of realized and expected labor market conditions and inflation.
The Fed said data received since its previous meeting in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace.
Looking ahead, members of the Fed project two more rate hikes this year, which would bring the target range for the federal funds rate to 1.25 to 1.50 percent. The median estimate is unchanged from last December.
The Fed reiterated that it expects economic conditions will evolve in a manner that will warrant gradual increases in interest rates.
Minneapolis Fed President Neel Kashkari was the lone member to vote against the rate hike, preferring to leave rates unchanged.
The Fed announcement largely overshadowed the slew of economic data released earlier in the day, including a report from the Commerce Department showing an uptick in retail sales in the month of February.
The Commerce Department said retail sales inched up by 0.1 percent in February after climbing by an upwardly revised 0.6 percent in January. The slight increase came in line with economist estimates.
Excluding a modest drop in auto sales, retail sales rose by 0.2 percent in February after jumping by 1.2 percent in January. The increase in ex-auto sales also matched expectations.
A separate report from the Labor Department showed a modest uptick in consumer prices in February, while the National Association of Home Builders said its reading on homebuilder confidence jumped to a nearly twelve-year high in March.
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 Philadelphia-area manufacturing activity.
by RTT Staff Writer
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