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Treasuries See Further Upside After Fed Leaves Rates Unchanged

Following the pullback seen in the previous session, treasuries moved back to the upside over the course of the trading day on Wednesday.

Bond prices climbed into positive territory in early trading and reached new highs going into the close. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.7 basis points to 1.594 percent.

The ten-year yield more than offset the increase seen on Tuesday, ending the session at its lowest closing level in well over three months.

Treasuries saw further upside after the Federal Reserve announced its widely expected decision to leave interest rates unchanged following the conclusion of its two-day monetary policy meeting.

The Fed decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent, keeping rates unchanged for the second straight meeting after three straight quarter-point rate cuts.

The accompanying statement was largely unchanged from last month, with the Fed noting that recent data indicates the labor market remains strong and that economic activity has been rising at a moderate rate.

The central bank did describe household spending as rising at a "moderate pace" compared to last month's description of spending as rising at a "strong pace."

In his post-meeting press conference, Fed Chairman Jerome Powell acknowledged that some of the uncertainties around trade have diminished following the signing of the phase one U.S.-China trade deal.

Powell noted that some uncertainties about the global economic outlook remain, however, with the Fed chief specifically pointing to the new coronavirus outbreak.

"With the yield curve close to re-inverting, speculation has risen that the Fed might consider cutting interest rates again, perhaps because of fears about the potential economic disruption from the new coronavirus," said Paul Ashworth, Chief U.S. Economist at Capital Economics.

"But unless the U.S. experiences its own epidemic, we doubt the indirect effects from the disruption in China would be enough to warrant a U.S. rate cut," he added. "We continue to expect that the Fed will leave rates on hold for an extended period."

In U.S. economic news, the National Association of Realtors released a report unexpectedly showing a sharp pullback in pending home sales in the month of December.

NAR said its pending home sales index plunged by 4.9 percent in December after jumping by 1.2 percent in November. Economists had expected pending home sales to rise by 0.5 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Trading on Thursday may be impacted by reaction to the Commerce Department's preliminary reading on fourth quarter GDP.

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