Treasuries Close Lower Following Noncommittal Fed Statement

Following the pullback seen in the previous session, treasuries saw some further downside over the course of the trading day on Wednesday.

Bond prices saw some volatility following the release of the Federal Reserve’s monetary policy announcement but still closed in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.9 basis points to 2.279 percent.

The lower close by treasuries came as traders digested the latest Fed statement, which was little changed from the statement released following the June meeting. As was widely expected, the central bank left interest rates unchanged.

The statement included some subtle changes that point toward a near-term interest rate hike, but the Fed did not provide a specific timetable.

The Fed reiterated economic activity has been expanding moderately and was somewhat more upbeat about the labor market and the housing sector.

Analysts also highlighted the inclusion of the word “some” in the Fed’s assessment that it would be appropriate to raise rates “when it has seen some further improvement in the labor market.”

The comment is likely to increase the focus on the two monthly jobs reports scheduled to be released before the next Fed meeting in September, with the July jobs report due out next Friday.

Chris Low, chief economist at FTN Financial, said, “The message of ‘some’ is that the past 6 weeks data pushed the FOMC a little closer to raising rates, but they are still waiting for more good news before they actually pull the trigger.”

In light of the focus on the Fed, traders largely shrugged off a report from the National Association of Realtors showing an unexpected drop in pending home sales in June.

NAR said its pending home sales index fell by 1.8 percent to 110.3 in June, while economists had expected the index to increase by 1.0 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.

The Fed news also overshadowed the results of the Treasury Department’s auction of $35 billion worth of five-year notes, which attracted slightly above average demand.

The five-year note auction drew a high yield of 1.625 percent and a bid-to-cover ratio of 2.58, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.50.

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 may continue to be impacted by reaction to the Fed statement, although traders are also likely to keep an eye on reports on second quarter GDP and weekly jobless claims.

The material has been provided by InstaForex Company – www.instaforex.com

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