Fed's Interest Rate Projections Continue To Weigh On Treasuries

(RTTNews) - After turning lower following the Federal Reserve's monetary policy announcement on Wednesday, treasuries saw some further downside during trading on Thursday.

Bond prices came under pressure in early trading and remained firmly negative throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.9 basis points to 2.629 percent.

With the increase on the day, the ten-year yield extended its recent upward trend, reaching its highest closing level in over two months.

The weakness among treasuries came as traders continued to react to the Fed's latest interest rate projections, which suggest that officials expect rates to be raised faster than previously anticipated.

According to the latest projections, the median estimate calls for the federal funds rate to be at 1.375 percent by the end of 2015 compared to the median projection of 1.125 percent in June.

The median projection for the federal funds rate at the end of 2016 also climbed to 2.875 percent from 2.50 percent.

For bond traders, the new projections overshadowed the fact that the Fed reiterated its pledge to keep interest rates low for a "considerable time."

Upbeat jobs data also weighed on treasuries, with a report from the Labor Department showing a sharp pullback in initial jobless claims in the week ended September 13th.

The report said initial jobless claims tumbled to 280,000, a decrease of 36,000 from the previous week's revised level of 316,000. Economists had been expecting jobless claims to edge down to 305,000.

With the much bigger than expected decrease, jobless claims fell to their lowest level since hitting 279,000 in the week ended July 19th, which was the lowest since May of 2000.

A separate report from the Commerce Department showed a much bigger than expected drop in housing starts in the month of August, although the pullback came after starts jumped to a nearly seven-year high in July.

Similarly, the Philadelphia Federal Reserve released a report showing a notable drop by its index of regional manufacturing activity in September, but the decrease came from a three-year high.

The Conference Board is scheduled to release its report on leading economic indicators on Friday, although trading activity may be somewhat subdued as traders continue to digest the Fed statement.