Treasury prices rise as Fed stirs concern about economy
NEW YORK—Treasury prices advanced Wednesday after the Federal Reserve announced a quarter-point interest rate cut and indicated it was taking a neutral stance toward future reductions amid concerns about the economy.
Policymakers lowered the Fed's benchmark fed funds rate by a quarter point to 2 percent. In its accompanying economic statement, the central bank said it "will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability" -- a sign that another rate cut isn't guaranteed when the Fed's Open Market Committee meets again June 25.
Many investors were expecting the Fed to pause in its rate-cutting campaign after the Wednesday meeting because of concerns about inflation. The Fed has cut rates a total of eight times, or 3.25 percentage points, since last summer, when the protracted credit crisis began paralyzing U.S. financial markets and hobbling the nation's economy.
"I was disappointed, mainly from the standpoint that they gave no acknowledgment about the financial market improvements and liquidity," said Joe Balestrino, a portfolio manager at Federated Investors who expected the Fed to indicate a pause was on the way. "It was more neutral than I would have thought. ... I guess they are taking more of a wait-and-see approach."
Treasurys, which at first fell after the Fed announcement, rose as investors sought some defensive positions. Treasurys have shot higher in recent months, sending their yields tumbling, as investors sought the safety of government debt.
The benchmark 10-year Treasury note rose 23/32 to 98 3/32 and yielded 3.74 percent, down from 3.80 percent late Tuesday, according to BGCantor Market Data. Prices and yields move in opposite directions.
The 30-year long bond rose 1 11/32 to 98 12/32 and yielded 4.47 percent, down from 4.55 percent late Tuesday.
The 2-year note rose 6/32 to 99 23/32 and yielded 2.26 percent, down from 2.36 percent late Tuesday.
In late trading, the 10-year yield fell to 3.73 percent and yields for the 30-year and 2-year note were unchanged.
The 3-month Treasury bill's yield was at 1.37 percent, down from 1.49 percent late Tuesday, while its discount rate was at 1.347 percent.
In its statement, the Fed said "recent information indicates that economic activity remains weak." However, it also said its rate cuts so far and steps it has taken to restore stability to the credit markets "should help to promote moderate growth over time and to mitigate risks to economic activity."
The Fed's decision followed a government report that indicated the economy continues to be hampered by higher energy and food prices. The Commerce Department estimated that the U.S. gross domestic product during the first quarter rose at a very modest seasonally adjusted annual rate of 0.6 percent during the first quarter, though the figure came in better than the market anticipated.
The Treasury Department said Wednesday it plans to sell $21 billion of new securities in its quarterly refunding. The government plans to auction $15 billion of 10-year notes on May 7 and $6 billion of 29 1/2-year bonds on May 8.
In addition, the Treasury said it plans to revive the sale of one-year bills as a way to raise money to combat the federal budget deficit. The government said the economy's decline has hurt tax receipts, and increased its funding needs.
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