Treasuries Close Firmly Positive After Late-Day Advance

After seeing modest weakness for much of the session, treasuries showed a significant move to the upside going into the close of trading on Wednesday.

Bond prices moved sharply higher in the final minutes of trading, closing firmly positive. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.3 basis points to 2.917 percent after reaching a high of 3.011 percent.

The late-day advanced by treasuries came after Federal Reserve Chair Jerome Powell indicated the central bank does not plan to raise interest rates as aggressively as some had feared.

“A 75 basis point increase is not something that committee is actively considering,” Powell said. “I think expectations are that we’ll start to see inflation, you know, flattening out.”

The comments from Powell came after the Fed a announced its widely expected decision to raise interest rates by half a percentage point in an effort to return elevated inflation to its 2 percent objective.

The Fed announced that it has decided to raise the target range for the federal funds rate by 50 basis points to 0.75 to 1.0 percent and said it anticipates that ongoing increases in the target range will be appropriate.

In addition, the Fed decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1.

The widely expected decision to raise interest rates came even though the Fed acknowledged that overall U.S. economy activity edged down in the first quarter.

The central bank noted that household spending and business fixed investment have remained strong, while job gains have been robust.

The Fed said inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

On the U.S. economic front, a report from the Institute for Supply Management showed an unexpected slowdown in the pace of growth in U.S. service sector activity.

The ISM said its Services PMI fell to 57.1 in April from 58.3 in March, although a reading above 50 still indicates growth in the sector. The decrease surprised economists, who had expected the index to inch up to 58.5.

Anthony Nieves, Chair of the ISM Services Business Survey Committee, said the pullback by the index was mostly due to the restricted labor pool and the slowing of new orders growth.

A separate report released by payroll processor ADP showed U.S. private sector job growth slowed by more than expected in the month of April.

ADP said private sector employment increased by 247,000 jobs in April after jumping by an upwardly revised 479,000 jobs in March.

Economists had expected private sector employment to surge by 395,000 jobs compared to the addition of 455,000 jobs originally reported for the previous month.

The Commerce Department also released a report showing the U.S. trade deficit widened to a new record in the month of March.

The report showed the trade deficit widened to $109.8 billion in March from a revised $89.8 billion in February. Economists had expected the deficit to widen to $107.0 billion from the $89.2 billion originally reported for the previous month.

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, while traders are also likely to keep an eye on reports on jobless claims and labor productivity.

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