Treasuries Extend Yesterday's Rally As Fed Hints At Potential Pause

(RTTNews) - After moving sharply higher over the course of the previous session, treasuries saw further upside during trading on Wednesday.

Bond prices pulled back off their best levels going into the close but remained in positive territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.6 basis points to 3.403 percent.

With the decrease on the day, the ten-year yield added to the 13.5 basis point slump seen on Tuesday.

The continued strength among treasuries came as the Federal Reserve announced its widely expected decision to raise interest rates by another quarter but signaled a potential pause in rate hikes.

The Fed decided to raise the target range for the federal funds rate by 25 basis points to 5 to 5.25 percent, making the tenth straight rate hike.

The unanimous decision to continue raising rates came as the Fed noted inflation remains elevated while also observing that job gains have been robust in recent months and the unemployment rate has remained low.

Notably, however, the Fed omitted a sentence included in the March statement that said the central bank "anticipates that some additional policy firming may be appropriate" to return inflation to 2 percent over time.

The Fed also tweaked language regarding the outlook for monetary policy, saying "the extent to which additional policy firming may be appropriate" rather than "the extent of future increases in the target range."

In his post-meeting press conference, Fed Chair Jerome Powell said the central bank would take a "data-dependent approach" to future monetary policy decisions and stressed decision on a pause was not made at the meeting.

The next monetary policy meeting is scheduled for June 13-14, with CME Group's FedWatch Tool currently indicating an 83.6 percent chance the Fed will leave rates unchanged.

"The Fed signaled that there will likely be a pause in June, but it came with a caveat that the FOMC remains highly attentive to inflation and is data dependent," said Ryan Sweet, Chief US Economist at Oxford Economics.

"In other words, if there is any upside surprise to inflation, the central bank won't hesitate to resume hiking interest rates because they're determined to break inflation's back," he added. "As such, there is a risk that the pause is temporary."

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, while reports on weekly jobless claims, the U.S. trade deficit and labor productivity are also likely to attract some attention.