Treasuries Slump as Fed Keeps Rates Unchanged

Longer dated issues finished weaker but are expected to recover on Thursday

The surprise, the mundane, and the expected left Treasuries choppy and defensive Wednesday. Fourth quarter GDP provided the day's surprise, rising 0.2% compared to expectations of a 1% contraction. The Treasury provided the mundane, announcing a more-or-less anticipated $29 billion refunding package and reinstituting bond buy backs for April.

The Fed provided the expected, leaving rates unchanged at 1.75% and maintaining a bias toward easing. Treasuries chopped and churned mostly in line with the mood swings on Wall Street ahead of the FOMC result, but rounded out the session on a heavier note as stocks finally got a grip and finished strongly.

The March bond bounced after probing under 103 a couple times, but ran out of room on the upside above 103-20, closing down 2/32 at 103-06. However, the cash curve closed much more heavily thanks to the late push on equities, with the front-end accordingly underperforming. The curve kept to its flatter bias following the resumption of bond buybacks ($3-4 billion in April), with the two-year note and 30-year bond spread finishing around +236 basis points. ECI and jobless claims are due Thursday, and payrolls loom Friday.

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