NEW YORK: Prices for US Treasuries slid on Wednesday as investors weighed the extent of a rally this week sparked by a plan to tax Cypriot bank accounts, with the Federal Reserve keeping policy on hold.
The Fed will keep pumping about $85 billion into the economy each month until the job market shows marked improvement, though Chairman Ben Bernanke said the bank could change the rate of purchase as the economy improves.
And while there are risks to persistently low interest rates, the bank can handle those hazards for now, Bernanke said at a news conference concluding a two-day policy meeting.
"In the committee's view these costs remain manageable but will continue to be monitored, and we will take them into appropriate account as we determine the size, base and composition of our asset purchases," he said.
Analysts said there was little surprising in the Fed's statement.
"We have been and continue to take the Fed at its word," said Henry Smith, chief investment officer at Haverford Trust Co in Philadelphia.
"The fact is, the Fed is committed to this, call it an all-in policy, for the foreseeable future."
Prices pared losses slightly on the news but remained lower on the day.
The benchmark 10-year note was last trading down 14/32 in price to yield 1.953 percent.
Prices for the 30-year bond briefly spiked even lower after the news but then pared losses. Those bonds were last down 1-05/32 in price to yield 3.192 percent.
Prices for US Treasuries gained this week after fears that a tax on bank deposits to help fund a bailout for Cyprus could be adopted elsewhere in the euro zone, including Italy and Spain.
Cypriot lawmakers overwhelmingly rejected the deeply unpopular tax on Tuesday, and the island nation is now pleading for a new loan from Russia to avert a financial meltdown.
There's now some recognition "that this market has gone a little too far on a short-term basis, though that doesn't mean it will be a straight line back the other way," said Greg Faranello, a Treasuries trader at Societe Generale in New York.
And with the euro zone debt crisis still unresolved, easy solutions will be few, said Wilmer Stith, portfolio manager of the Wilmington Broad Market Bond Fund in Baltimore.
"At the end of the day the slow train ride that they're on of austerity and rebuilding will take several years," he said.
Several banks have raised their submissions in the London interbank offered rate (Libor) this week, spurring some concerns that banks and investors may again be pulling back on loans made in the euro zone region.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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