U.S. Treasury yields saw muted moves Wednesday after the Federal Reserve stayed the course with its monetary policy plan and emphasized the strength of the domestic economy, affirming expectations that a further two rate increases are in store in 2018.
“Economic activity has been rising at a strong rate,” read the policy-making Federal Open Market Committee statement, which was released after a two-day gathering of its members led by Jerome Powell.
See: Fed holds interest rates steady but signals another hike is coming soon[1]
The 10-year U.S. government bond yield TMUBMUSD10Y, +0.98%[2] edged back slightly from its intraday session peak just above 3% to yield 2.987%, while, the two-year note yield TMUBMUSD02Y, -0.30%[3] the most sensitive to monetary policy moves, inched 0.9 basis point higher to 2.678%, little changed from its level before the Fed statement. The 30-year bond yield TMUBMUSD30Y, +1.27%[4] known as the long bond, pared its gains slightly to yield 3.113%.
“There were very few changes in this policy statement, both in the tone and content,” said Ward McCarthy, chief financial economist at Jefferies. He said the FOMC continued to reflect “optimism about the economy,” adding that he saw the probability of rate hikes in September and December in play, with the expectation that the central bank may signal that it is approaching the so-called neutral rate, a level that will neither hinder nor boost economic expansion.
The FOMC voted unanimously to hold rates at a range between 1.75% and 2%, after raising rates in June.
The market is placing a nearly 90% probability of rate increase in September, according to CME Group data[5] after the statement.
The widely expected Fed decision follows second-quarter, gross domestic product that came in at the strongest annualized rate in a quarter, 4.1%, in nearly four years, underlining U.S. economic expansion in its ninth year.
Earlier in the session, the benchmark 10-year Treasury yield hit a perch at 3%, which may be producing some headwinds, along with fresh concerns about tariff clashes between the U.S. and China, for the Dow Jones Industrial Average DJIA, -0.31%[6] and the S&P 500 index SPX, -0.08%[7] ...