U.S. Government Bonds Hold On to Gains After Fed Raises Rates

By Akane Otani Features Dow Jones Newswires

U.S. government bonds held on to gains Wednesday after the Federal Reserve raised short-term interest rates in a decision widely anticipated among investors and analysts.

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The yield on the benchmark 10-year U.S. Treasury note was recently at 2.370%, according to Tradeweb, compared with 2.378% before the release of the decision and 2.403% Tuesday.

Yields, which fall as bond prices rise, slipped early Wednesday after Labor Department data showed continued signs of weakness in inflation.

The consumer-price index, which measures what Americans pay for everything from coffee to prescription drugs, rose 0.4% in November, in line with what economists surveyed by The Wall Street Journal had expected.

But core prices, which exclude the more volatile categories of food and energy, rose just 0.1% in November, missing economists' estimates for a 0.2% increase. That suggested inflation pressures remain muted on the whole, some bond analysts said, helping push Treasury yields lower.

Inflation tends to weaken demand for government bonds, since it chips away at the purchasing power of their fixed returns.

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"Any time you have core inflation come in softer than expected, it invites a little bit of uncertainty as to how aggressively the Fed can move," said Joe Tanious, investment strategist at Bessemer Trust.

The Fed concluded its two-day policy meeting Wednesday. Bond investors and traders had widely expected the central bank to announce an interest-rate increase, with federal-funds futures tracked by data provider CME Group showing a 100% chance of at least one rate hike by year-end before the announcement.

Federal Reserve Chairwoman Janet Yellen is expected to address the press in a conference later Wednesday. Analysts say they will be focusing on any clues the Fed provides on its expected rate path for 2018 and beyond.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

December 13, 2017 14:47 ET (19:47 GMT)