Treasurys Strengthen Following Fed Statement

By Sam Goldfarb Features Dow Jones Newswires

Prices of U.S. government bonds edged higher Wednesday after the Federal Reserve kept short-term interest rates steady and signaled it could start shrinking its bond portfolio "relatively soon."

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In recent trading, the yield on the benchmark 10-year Treasury note was 2.298%, according to Tradeweb, compared with 2.323% just before the Fed's statement was released and 2.328% Tuesday.

The yield on the two-year note, which is highly sensitive to the Fed's rate-policy outlook, fell to 1.359% from 1.383%% right before the Fed. Yields fall as bond prices rise.

Investors had sold bonds earlier this week, hedging their bets before the Fed's statement.

One concern of investors was the Fed could provide a more specific timeline for when it will start shrinking its balance sheet, and the central bank did take a step in that direction, tweaking its guidance to "relatively soon" from "this year" in its previous statement.

Overall, however, the statement offered few new insights into the Fed's plans, giving investors an opportunity to buy bonds after the recent selloff.

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Treasurys have endured big swings over the past month.

Bonds sold off sharply at the end of June amid signs that major central banks outside of the U.S. were poised to start scaling aback stimulus programs. They then rallied as central bank officials in the U.S. and Europe turned a spotlight on a recent inflation slowdown, suggesting they would be cautious in tightening monetary policy.

Along with the Fed meeting, traders on Wednesday were keeping an eye on Congress, where the Senate is proceeding with a complicated effort to dismantle and possibly replace former President Barack Obama 's 2010 Affordable Care Act.

Some investors see the legislative maneuvering as a test for whether Congress can ultimately pass tax cuts, which could lead to higher bond yields by boosting inflation and likely requiring more issuance of Treasurys to finance the measure.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

July 26, 2017 15:03 ET (19:03 GMT)