Treasuries Finish Volatile Session Nearly Unchanged

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Treasuries showed wild swings over the course of the trading session on Wednesday before ending the day nearly unchanged line.

Bond prices initially came under pressure following the Federal Reserve’s monetary policy announcement but rebounded going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 0.920 percent.

The roughly flat close by treasuries came after the Fed announced its widely expected decision to leave interest rates unchanged while also revealing plans to continue its asset purchase program until the economy shows substantial progressed towards the central bank’s goals of maximum employment and price stability.

The Fed said it decided to keep the target range for the federal funds rate at 0 to 1/4 percent, which is where the target range has remained since an emergency rate cut in March.

The accompanying statement reiterated that the Fed plans to keep rates at near-zero levels until labor market conditions have reached levels consistent with maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.

In one of the few changes to the November statement, the Fed also said it plans to continue purchasing bonds at a rate of at least $120 billion per month until “substantial further progress” has been made toward its policy goals.

“In isolation, that change in language indicates that the purchases could continue for longer than previously believed,” said Paul Ashworth, Chief U.S. Economist at Capital Economics.

He added, “But ‘substantial progress’ is still a suitably vague term and this change was well flagged in the minutes from the last FOMC meeting, which perhaps explains why the 10-year Treasury yield is up post-announcement.”

In addition to announcing its latest monetary policy decision, the central bank also provided updated economic projections.

The latest projections show the Fed now expects the economy to shrink by less than expected in 2020 and grow by slightly more than expected in 2021 and 2022.

Earlier in the day, treasuries recovered from initial weakness following the release of a report from the Commerce Department showing retail sales slumped by much more than expected in the month of November.

The Commerce Department said retail sales tumbled by 1.1 percent in November following a revised 0.1 percent dip in October.

Economists had expected retail sales to slip by 0.3 percent compared to the 0.3 percent increase originally reported for the previous month.

Excluding a decrease in sales by motor vehicle and parts dealers, retail sales still fell by 0.9 percent in November. Ex-auto sales were expected to inch up by 0.1 percent.

Reports on weekly jobless claims, housing starts, and Philadelphia-area manufacturing activity may attract attention on Thursday, although traders are also likely to keep a close eye on any developments in Washington.


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