US Government Bond Prices Fall After Fed Announcement

Ivan Schwartz
September 23, 2017

Shares of Calgon Carbon soared 61.9 percent after Japanese chemical manufacturer Kuraray agreed to buy the carbon materials firm for $1.107 billion.

Cereal maker General Mills was also down 8 percent after reporting a disappointing quarter. United States stocks were little changed.

The Dow Jones industrial average slipped 7 points, less than 0.1 percent, to 22,363.

The 2-year Treasury note yield TMUBMUSD02Y, -0.55% the most sensitive to Fed policy shifts, was little changed at 1.443%, after hitting its highest level since November 3, 2008, according to WSJ Market Data Group.

The decision to set the first balance sheet roll-offs for October was in line with the expectations of a majority of analysts surveyed by Bloomberg News ahead of the meeting.

KEEPING SCORE: European stocks opened steady.

With the pound slipping to 1.3486 against the greenback, Britain's FTSE 100 is expected to open around 10 points higher at the start of trading, according to financial bookmakers IG. The Nasdaq composite lost 0.1 percent to 6,456.04.

After concluding a closely watched two-day policy meeting on Wednesday, the Fed left interest rates unchanged as expected but signalled it still expects one more increase by the end of the year despite a recent bout of low inflation. If the Fed were to coalesce around that belief, doubts could arise about whether it should keep raising rates or delay further hikes.

They do say, however, that they plan to initiate the balance sheet normalization program that they announced in June of this year.

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While the storms will temporarily boost inflation thanks to higher prices for gasoline and other items, "apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 per cent in the near term but to stabilise around the committee's 2 per cent objective over the medium term", the Fed said.

The Fed's interest rate policy can have an impact on mortgage rates and cap rates, and by extension property prices.

"While a rate hike is negative, the fact that the Fed's confidence in the economy is strong enough to expect a rate hike can be taken as supportive of market sentiment", said Soichiro Monji, chief strategist at Daiwa SB Investments.

The Fed also said it would start to undo another one of its great experiments to pump up the economy in the midst of the financial crisis and the economic doldrums that followed.

ASIA'S DAY: Japan's Nikkei 225 added 0.1 percent to 20,310.46 and South Korea's Kospi edged down 0.2 percent to 2,412.20. China's Shanghai Composite Index gained 0.3 percent to 3,366.00.

At 0630 GMT the rand was 0.1% firmer at 13.30 per dollar compared to a close at 13.31 overnight in NY.

Stocks turned lower after the announcement before finishing mixed.

USA benchmark West Texas Intermediate (WTI) crude futures hit a four-month high of $50.79 per barrel and last traded at $50.70, flat from the US close on Wednesday. Brent crude, used to price global oils, gained 14 cents to $56.15 a barrel in London.

CURRENCIES: The dollar fell to 111.26 yen from 111.58 yen. The euro dropped to $1.1879 from above $1.20 just before the Fed's policy announcement.

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