Treasuries Remain Firmly Positive After Fed Cuts Rates

After ending the previous session modestly higher, treasuries saw some further upside over the course of the trading day on Wednesday.

Bond prices drifted higher in morning trading and managed to remain firmly positive despite some late-day volatility. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.7 basis points to 1.798 percent.

The advance by treasuries came as the Federal Reserve announced its decision to lower interest rates for the third straight meeting.

The Fed announced its widely expected to decision to lower the target range for the federal funds rate by 25 basis points to 1-1/2 to 1-3/4 percent.

The quarter point rate cut follows two matching moves at the Fed’s meetings in September and July, which marked the first rate cuts in over a decade.

Traders seemed unfazed by a change to the accompanying statement suggesting the central bank may put further monetary policy easing on hold.

The Fed’s accompanying statement removed a key line indicating the central bank would continue to “act as appropriate to sustain the expansion.”

The line was included in each of the Fed’s three previous statements and was seen as pointing toward a near-term rate cut.

The Fed said it would continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.

“It’s a small change, but suggests less willingness to continue cutting rates in future,” FHN Financial Chief Economist Chris Low said about removing the line.

Low added, “In other words, while the FOMC was previously in the midst of a mid-cycle series of rate cuts and assessing whether to end it, the new language suggests they are ready to end it, but alert for evidence it should continue.”

The Fed is scheduled to hold its next monetary policy meeting on December 10-11, with CME Group’s FedWatch tool currently indicating a 79.1 percent chance the central bank will leave rates unchanged.

In his post-meeting press conference, Fed Chairman Jerome Powell said the current stance of monetary policy is “likely to remain appropriate” as long as “the outlook remains broadly in keeping with our expectations.”

Powell also told reporters the Fed would need to see a “really significant move up in inflation that’s persistent” before the central bank would consider raising interest rates.

With the focus on the Fed, traders largely shrugged off the release of some upbeat U.S. economic data, including the Commerce Department’s first reading on third quarter GDP.

The Commerce Department report showed U.S. economic growth slowed much less than expected in the third quarter.

The report said real gross domestic product increased by 1.9 percent in the third quarter after climbing by 2.0 percent in the second quarter. Economists had expected GDP growth to slow to 1.7 percent.

Payroll processor ADP released a separate report showing U.S. private sector employment increased by slightly more than anticipated in the month of October.

ADP said private sector employment climbed by 125,000 jobs in October compared to economist estimates for an increase of about 120,000 jobs.

However, the report also showed private sector job growth in September was downwardly revised to 93,000 from the previously reported addition of 135,000 jobs.

“Job growth has throttled way back over the past year,” said Mark Zandi, chief economist of Moody’s Analytics. “If hiring weakens any further, unemployment will begin to rise.”

Reports on weekly jobless claims and personal income and spending may attract some attention on Thursday, although trading activity may be somewhat subdued ahead of the release of the Labor Department’s more closely watched monthly jobs report on Friday.

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