US bond yields drop on Fed interest rate announcement

The price of two- and ten-year US Treasury bonds were up on Wednesday after the announcement that the Federal Reserve will keep interest rates at 5.25 percent for at least another month. In the comments accompanying the news, the Fed said that there still remains a risk of inflation, but did not appear to signal any likelihood of any near-term rate hikes.

Just after the interest rate announcement was made, yields on two-year Treasury bonds dropped 8.9 basis points to 4.523 percent, while ten-year paper saw yields fall to 4.520 percent, down 3.6 basis points.

In the Eurozone, bond yields were mixed ahead of the US interest rate decision and after comments from European Central Bank president Jean-Claude Trichet that indicated rates could rise again soon. Yields on the two-year Schatz were 4.3 basis points lower to 3.878 percent, while the ten-year Bund saw yields rise by 1.8 basis points to 3.931 percent.

Yields were also mixed in the UK, where chancellor Gordon Brown announced that the new budget includes tax cuts. An announcement from the Debt Management Office, however, said that new government debt will be cut in the upcoming fiscal year. Index-lined issues will be down from £17.3 billion to £15 billion, while long-dated gilts will drop to £23 billion, down from £25.3 billion.

Two-year gilts added 0.2 basis points to 5.344 percent, but ten-year gilts yielded 4.813 percent, a decline of 0.2 basis points.

The Japanese markets were closed for a holiday.

Story link: US bond yields drop on Fed interest rate announcement