Treasuries Close Firmly Negative After GDP, Fed Announcement

(RTTNews) - Treasuries showed a notable move to the downside in morning trading on Wednesday and remained stuck in the red as traders digested the Federal Reserve's monetary policy announcement.

Bond prices were largely rangebound in afternoon trading, lingering firmly in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged up by 9.2 basis points to 2.554 percent.

Upbeat economic data contributed to the morning weakness among treasuries, with a report from the Commerce Department showing that U.S. economic activity rebounded by more than expected in the second quarter.

The Commerce Department's preliminary report said GDP increased by 4.0 percent in the second quarter following a revised 2.1 percent decrease in the first quarter.

Economists had expected GDP to rise by 3.0 percent compared to the 2.9 percent drop that had been reported for the previous quarter.

The report generated optimism about the economy and fueled speculation that the Fed could begin raising interest rates sooner than previously anticipated.

Treasuries remained firmly in the red following the Fed's announcement of its widely expected decision to reduce the pace of its asset purchases by $10 billion to $25 billion per month.

The Fed's accompanying statement acknowledged the rebound in economic activity in the second quarter but said a range of labor market indicators suggests that there remains significant underutilization of labor resources.

With regard to the outlook for interest rates, the central bank said it continues to anticipate maintaining the current target range for a considerable time after the asset purchase program ends.

However, Philadelphia Fed President Charles Plosser objected to the guidance, arguing that such language is time dependent and does not reflect the considerable economic progress that has been made.

Chris Low, chief economist at FTN Financial, said, "None of this is very surprising, but bonds are down a bit in price, perhaps because Plosser's dissent, while consistent with what we know from his recent speeches, nonetheless suggests hawks are a little bolder."

While reaction to the Fed statement may continue to impact trading on Thursday, traders are also likely o keep an eye on reports on weekly jobless claims and Chicago-area business activity.