After seeing initial weakness, treasuries moved modestly higher over the course of the trading session on Wednesday.
Bond prices pulled back off their highs 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, edged down by 1.5 basis points to 1.596 percent.
With the modest decrease on the day, the ten-year yield extended a recent downward trend, falling to its lowest closing level in well over three years.
The higher close by treasuries came as the Federal Reserve seemed to offer a dovish assessment of the outlook for interest rates.
With the Fed leaving rates unchanged as was widely expected, the focus was largely on the central bank’s accompanying statement and updated forecasts.
The statement said data received since the last Fed meeting indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.
The comments about the labor market come after a Labor Department report showed that employment increased by much less than expected last month.
The Fed also said market-based measures of inflation compensation declined, although it was a little more upbeat on household spending.
The updated forecasts also showed that six Fed officials now expect only rate hike by the end of the year compared to just one who made that predication in March.
Responding to the news, Paul Ashworth, Chief U.S. Economist at Capital Economics, said, “A July rate hike is still possible, but it would require a meaningful rebound in payroll employment growth in June and a decisive U.K. vote to remain in the European Union.”
“The most likely scenario is that the Fed waits until September to raise interest rates again, to a range of between 0.50% and 0.75%,” he added.
The Fed announcement largely overshadowed a slew of U.S. economic data released earlier in the day, including a Labor Department report showing a slightly bigger than expected increase in producer prices in the month of May.
The Labor Department said its producer price index climbed by 0.4 percent in May after edging up by 0.2 percent in April. Economists had expected prices to rise by 0.3 percent.
Excluding food and energy prices, core producer prices rose by 0.3 percent in May after inching up by 0.1 percent in the previous month. Core prices had been expected to tick up by another 0.1 percent.
Meanwhile, the Fed released a report showing a bigger than expected pullback in industrial production in the month of May.
The Fed said industrial production fell by 0.4 percent in May after climbing by a downwardly revised 0.6 percent in April. Production had been expected to edge down by 0.1 percent.
A separate report from the New York Fed showed an unexpected expansion in regional manufacturing activity in June.
Reaction to the Fed may continue to impact the markets on Thursday, although traders are also likely to keep an eye on reports on consumer prices, jobless claims, and homebuilder confidence.
The material has been provided by InstaForex Company – www.instaforex.com