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Treasuries Show Substantial Turnaround In Reaction To Fed Announcement

Treasuries showed a significant rebound following the announcement of the Federal Reserve's latest monetary policy decision on Wednesday.

Bond prices climbed firmly into positive territory, more than offsetting an initial move to the downside. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.1 basis points to 2.029 percent after reaching a high of 2.099 percent.

With the downturn seen late in the session, the ten-year yield ended the day at its lowest closing level since President Donald Trump was elected in November of 2016.

The turnaround by treasuries came after the Fed reiterated Chairman Jerome Powell's pledge to "act as appropriate" to sustain the U.S. economic expansion amid increasing uncertainties about the outlook for the economy.

The Fed announced its widely expected decision to leave interest rates unchanged on Wednesday, with the focus largely on the wording of the accompanying statement.

The statement said the Fed continues to see a sustained economic expansion, a strong labor market, and inflation near its 2 percent target as the most likely outcomes but noted uncertainties about this outlook have increased.

"In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion," the Fed said.

The line in the statement mirrors the pledge Powell made in a speech earlier this month, which helped spark expectations of a near-term interest rate cut.

Notably, the Fed also omitted its reference to remaining "patient" when determining future changes to interest rates.

The central bank also revealed that its decision to leave rates unchanged was not unanimous, with St. Louis Fed President James Bullard preferring to lower rates by 25 basis points.

Powell acknowledged in his post-meeting press conference that "Many participants believe that some cut to the fed funds rate would be appropriate in the scenario they see as most likely."

The Fed's dot plot projections show eight members expect rates to be unchanged by the end of the year, although a matching number expect at least one rate cut. One member expects a rate hike.

By the end of 2020, nine members expect a rate cut, five expect rates to remain unchanged and three expect an increase in rates.

CME Group's FedWatch Tool currently indicates a 77.4 percent chance the Fed will cut rates by 25 basis points at its next meeting at the end of July.

Reaction to the Fed statement may continue to impact trading on Thursday, although traders are also likely to keep an eye on reports on weekly jobless claims, leading economic indicators, and Philadelphia-area manufacturing activity.

The Treasury Department is also scheduled to announce the details of this month's auctions of two-year, five-year and seven-year notes.

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