U.S. Government Bond Prices Fall After Fed Announcement
September 20 2017 - 4:50PM
Dow Jones News
By Akane Otani
U.S. government bond prices fell for an eighth consecutive
session after the Federal Reserve indicated on Wednesday that it
could raise rates again in 2017.
The yield on the benchmark 10-year U.S. Treasury note settled at
2.276%, its highest close since Aug. 8, up from 2.239% Tuesday.
Yields rise as bond prices fall.
Meanwhile, the yield on the two-year U.S. Treasury note, which
tends to be more sensitive to market expectations for Fed policy,
rose to its highest level since November 2008, settling at 1.442%,
compared with 1.401% on Tuesday.
Bond yields had inched lower ahead of the Fed meeting, then
jumped alongside the U.S. dollar after the bank suggested it is
open to raising rates once more this year in December, and three
times next year. The central bank also said in a widely expected
announcement that it would begin shrinking its $4.2 trillion bond
portfolio starting in October.
After the announcement, Investors and analysts sensed a greater
chance of a rate rise, with federal-funds futures late Wednesday
pointing to a roughly 68% chance of a rate increase by December,
according to data from CME Group, compared with about 49% a week
ago.
Disappointment that the central bank "gave only passing mention
to inflation" while continuing to leave near-term rate projections
in place likely accounted for selling in the bond market, said Ian
Lyngen, head of U.S. rates strategy at BMO Capital Markets.
A streak of muted inflation readings had made many skeptical of
how quickly the Fed would be able to raise rates, although some
investors revised their bets last week after data showed an
unexpected acceleration in U.S. consumer prices.
Fears that the Fed will continue to raise rates despite
lackluster inflation could keep pressure on the bond market in the
near term, analysts say, although others believe the Fed is
unlikely to move aggressively in normalizing monetary policy.
The central bank said Wednesday that it reduced its longer-term
projection for its federal-funds rate. Fed officials now see a rate
target of 2.8%, rather than 3%.
The move, analysts say, suggests the Fed will proceed
cautiously.
"It's going to be a slow, slow climb," said Chris Gaffney,
president of EverBank World Markets, adding that he sees the
central bank moving slowly to prevent a market shock.
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
September 20, 2017 16:35 ET (20:35 GMT)
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