After drifting lower over much of the trading session on Wednesday, treasuries recovered late in the day to close roughly flat.
Bond prices spiked higher going into the close but still finished the day slightly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 2.001 percent after reaching a high of 2.052 percent.
The late-day rally by treasuries came on the heels of the Federal Reserve’s first monetary policy announcement of the new year.
As was widely expected, the Fed left interest rates unchanged after raising rates for the first time in nearly a decade last month.
The Fed stressed it is closely monitoring global economic and financial developments and reiterated its expectation that economic conditions will evolve in a manner that warrant only gradual rate increases.
Treasuries seemed to benefit from a sell-off on Wall Street, with stocks pulling back sharply due to the fact that the Fed did not completely rule out a rate hike at its next meeting in March.
Paul Ashworth, Chief U.S. Economist at Capital Economics, said, “Overall, a March rate hike is still possible, but it will require signs of improvement in the incoming economic data and financial markets that may not show up quickly enough.”
“Nevertheless, we still think that once the worst fears about China blow over and U.S. economic growth rebounds, the Fed will end up raising interest rates more rapidly than expected in the second half of this year,” he added.
The Fed statement largely overshadowed a report from the Commerce Department showing that new home sales increased by much more than expected in the month of December.
The report said new home sales jumped 10.8 percent to an annual rate of 544,000 in December from the revised November rate of 491,000. Economists had expected sales to climb to a rate of 500,000.
With the much bigger than expected, new home sales reached their highest annual rate since hitting 545,000 last February.
Meanwhile, the Treasury Department sold $35 billion worth of five-year notes on the day, attracting average demand.
The five-year note auction drew a high yield of 1.496 percent and a bid-to-cover ratio of 2.44, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.45.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
Finishing off this week’s series of long-term securities auctions, the Treasury is due to sell $29 billion worth of seven-year notes on Thursday.
Trading on Thursday may also be impacted by the release of reports on weekly jobless claims, durable goods orders, and pending home sales.
The material has been provided by InstaForex Company – www.instaforex.com