US Treasury prices pared losses on Wednesday after the Federal Reserve kept interest rates unchanged and painted a relatively upbeat picture of the US economy, without adopting a very hawkish tone. In its first meeting since President Donald Trump took office, the US central bank said job gains remained solid, inflation had increased and economic confidence was rising, although it gave no firm signal on the timing of its next rate move.
Some investors were anticipating that the Fed could focus on improving inflation to raise expectations that a hike was likely sooner than currently expected. Traders do not currently see a more than 50 percent chance of a rate increase until the Fed's June meeting, according to the CME Group's FedWatch Tool.
"It certainly was blander than people were anticipating because there was really nothing that could be quickly taken as more hawkish, or reflective of any change, from December," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.
Benchmark 10-year notes were down 6/32 in price to yield 2.47 percent, down from around 2.49 percent before the Fed statement, and up from 2.45 percent late on Tuesday.
Yields spiked as high as 2.52 percent before the Fed statement after several economic releases showed increasing growth momentum. US factory activity accelerated to more than a two-year high in January, pointing to a recovery in manufacturing.
The ADP National Employment Report also showed private employers added 246,000 jobs in January, up from 151,000 in December. Friday's government employment report is expected to show employers added 175,000 jobs in January, according to the median of 102 economists polled by Reuters.
Yields also rose as investors prepared for further corporate supply, after large debt sales by companies including Microsoft this week, and as demand to buy Treasuries for month-end rebalancing passed. "Typically the next day after month-end you see the market back up a little bit as people are looking towards corporate supply, which could weigh on Treasuries," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.
The US Treasury said on Wednesday it will hold the size of coupon auctions steady in the upcoming quarter and will conduct a small "contingency auction" that an official said would test its ability to borrow following a cyber attack.
The department plans to offer $62 billion in three-year, 10-year and 30-year Treasuries next week.
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