Treasuries Close Sharply Lower Following Fed Statement

(RTTNews) - Treasuries moved notably lower over the course of the trading day on Wednesday as traders reacted to the Federal Reserve's latest monetary policy decision.

Bond prices initially saw considerable volatility following the release of the Fed statement before pulling back sharply going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 7.7 basis points to 2.148 percent.

With the increase on the day, the ten-year yield regained some ground after ending the previous session at its lowest closing level in over a year.

The pullback by treasuries came on the heels of the release of the Fed statement, which continued to point to an interest rate hike sometime next year.

The Fed left interest rates at near-zero levels and said it can be patient in beginning to normalize the stance of monetary policy.

The use of the word "patient" attracted considerable attention, although the Fed said the guidance is consistent with its previous pledge to keep rates at low levels for a "considerable time."

While many traders were focused on the semantics, Rob Carnell, chief international economist at ING, said the other biggest feature of the statement was the degree of dissent.

"No less than three members dissented," Carnell said. "Fisher, who seems to be getting frustrated by FOMC foot-dragging, Kocherlakota, who is concerned about undershooting the price stability target, and Plosser, who thinks the statement should be more state contingent, not time contingent."

In her subsequent press conference, Fed Chair Janet Yellen claimed the new language in the statement does not indicate a change in policy intentions.

Yellen went on to say that the Fed is unlikely to start the process of normalizing policy for at least the next couple of meetings.

Peter Boockvar, managing director at the Lindsey Group, said, "Let's be honest, the Fed is winging it and playing games of semantics doesn't do us any favors from a market perspective and certainly not from an economic one."

"Short rates don't belong at zero anymore and the Fed is struggling with when and how to change that at the same time not wanting to scare the markets and the global economy," he added.

The Fed statement overshadowed a report from the Labor Department showing that U.S. consumer prices fell by more than anticipated in November amid another sharp drop in energy prices.

While reaction to the Fed statement may continue to impact trading on Thursday, reports on weekly jobless claims, leading economic indicators, and Philadelphia-area manufacturing activity may attract some attention.