Longer-Dated Treasuries Up After Fed Hike
MARKETSCOPE : Longer-dated Treasury issues gained in price on Tuesday, after the Federal Open Market Committee raised rates by 25 basis points to 3.75%.
The benchmark 10-year Treasury note was up 03/32 to 100-04/32 for a yield of 4.238% and the 30-year bond was up 26/32 to 113-06/32 for a yield of 4.507%. The 2-year Treasury note was down 04/32 to 100-02/32 for a yield of 3.982%.
The Fed's move was its 11th consecutive increase in rates, showing that the Fed is more concerned about future inflation than problems caused by Hurricane Katrina. Some had urged the Fed to pause its credit tightening program, arguing that the U.S. economy needed help to recover from recent fuel shortages.
The recent Fed action is likely to lead to curve flattening trades, according to Stone & McCarthy's John Canavan. The Fed said it believes that "policy accommodation can be removed at a pace that is likely to be measured." Canavan says the Fed action and statement paves the way for future increases.