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Treasuries Rebound In Reaction To Fed Statement

After seeing modest weakness for much of the session, treasuries showed a strong move to the upside going into the close of trading on Wednesday.

Bond prices climbed well off their worst levels and into positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 1.7 basis points to 2.695 percent.

The late-day rebound by treasuries came after the Federal Reserve announced its widely expected decision to leave interest rates unchanged.

The Fed said following a two-day meeting it has decided to maintain the target range for the federal funds rate at 2.25 to 2.50 percent.

The accompanying statement included some notable changes from last month, including dropping a reference to the Fed's plan for further gradual rate increases.

The central bank also removed a sentence describing the risks to the economic outlook as "roughly balanced."

Instead, the Fed said still sees a sustained expansion of economic activity, strong labor market conditions, and inflation near its symmetric 2 percent objective as the most likely outcomes but also pointed to global economic and financial developments and muted inflation pressures.

The Fed subsequently said it will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support those outcomes.

Fed Chairman Jerome Powell noted in his press conference that the "case for raising rates has weakened somewhat."

Similar to the decision to raise interest rates last month, the Fed's decision to leave interest rates unchanged was unanimous.

The next Fed meeting is scheduled for March 19th and 20th, with CME Group's FedWatch tool currently indicating a 98.7 percent chance the central bank will once again leave rates unchanged.

"A March hike was all but ruled out before this meeting, but a hike in the second quarter now appears to be in serious doubt," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "With financial conditions easing over recent weeks and the economic data still solid, we still on balance expect one more rate hike from the Fed, either at the April/May or June meeting."

The announcement from the Fed largely overshadowed mixed economic data showing stronger than expected private sector job growth but an unexpected decrease in pending home sales.

Traders are likely to keep an eye on the latest economic data on Thursday, including reports on weekly jobless claims, Chicago-area business activity, and new home sales.

The new home sales report for November will be the first data released by the Commerce Department since the government shutdown ended.

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