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Treasuries Climb Off Worst Levels But Still Close Lower After Rate Hike

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Treasuries initially came under pressure in reaction to the Federal Reserve’s monetary policy announcement but regained some ground going into the close.

While bond prices climbed well off their worst levels, they still closed lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.8 basis points to 2.188 percent after reaching a high of 2.246 percent.

The ten-year yield extended the notable upward move seen over the past several sessions, ending the day at its highest closing level since late May of 2019.

The lower close by treasuries came after the Fed announced its widely expected decision to raise interest rates for the first time since December of 2018 in an effort to combat inflation at 40-year highs.

The Fed said it has decided to raise the target range for the federal funds rate by 25 basis points to 0.25 to 0.5 percent.

The central bank also predicted ongoing rate hikes will be appropriate, with the Fed’s latest projections pointing to an interest rate of 1.9 percent by the end of the year.

Additionally, the Fed said it expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.

“With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong,” the Fed said.

The decision to raise rates by 25 basis points was nearly unanimous, although St. Louis Fed President James Bullard preferred a 50 basis point increase.

The rate hike came even as the Fed acknowledged Russia’s invasion of Ukraine is “causing tremendous human and economic hardship.”

The Fed announcement largely overshadowed the day’s economic data, including a Commerce Department report showing a modest increase in retail sales in the month of February.

The Commerce Department said retail sales rose by 0.3 percent in February after soaring by an upwardly revised 4.9 percent in January.

Economists had expected retail sales to increase by 0.4 percent compared to the 3.8 percent spike originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales edged up by 0.2 percent in February after surging by 4.4 percent in January. Ex-auto sales were expected to advance by 0.9 percent.

While the interest rate hike may continue to impact trading on Thursday, traders are also likely to keep an eye on reports on initial jobless claims, housing starts and industrial production.

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