US Treasury debt prices fell on Wednesday after the Federal Reserve cut benchmark interest rates as expected but signalled it may refrain from further easing if the economy holds up.
The central bank cut the federal funds rate, the recommended overnight lending rate among banks, by a quarter percentage point to 4.50 percent, and said the move "should help forestall" any further deterioration in economic growth. Bonds extended losses immediately after the Fed statement.
"The Fed gave the market a rate cut today with one hand, but with the other hand they pulled the rug out from under those who were looking for more rate cuts," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
Benchmark 10-year notes traded 21/32 lower in price for a yield of 4.47 percent from 4.39 percent late on Tuesday. Benchmark yields, which move inversely to prices, reached as high as 4.48 percent, the loftiest in over a week, and marking the biggest single-day jump in 10-year yields in over three weeks. "The market was expecting greater hints about the likelihood of further easing," said Richard Iley, senior economist at BNP Paribas in New York.
Short-term interest rate futures slipped on Wednesday, with futures implying a 42 percent chance the Fed will lower rates by 25 basis points again in December, to 4.25 percent, against 64 percent overnight. Bigger losses were seen in 2008 contracts as dealers scaled back ideas of rate cuts in the new year.
Bonds had already been trading lower before the Fed statement, after stronger-than-expected jobs and economic growth data early in the day, along with stock market gains.
The government's initial reading on third-quarter gross domestic product growth, released on Wednesday morning, was an annualised 3.9 percent, its strongest quarterly growth since the first quarter of 2006. Earlier, the ADP National Employment Report showed US private employers added 106,000 jobs in October, raising the prospects that the government's payrolls data on Friday will be stronger than the consensus forecast, analysts said. Economists expect 80,000 jobs were added to US nonfarm payrolls in October, down from September's 110,000 gain, a recent Reuters poll showed.
Two-year Treasury notes traded 9/32 lower in price for a yield of 3.95 percent from 3.81 percent late on Tuesday. While two-year notes fell in price on Wednesday, their yields in October posted the fifth monthly drop in a row, which was their longest winning streak in four years. Five-year notes traded 16/32 lower for a yield of 4.17 percent from 4.06 percent, while the 30-year bond traded 1-2/32 lower in price for a yield of 4.75 percent.