Bond Report: Treasury yields rise to session highs as Fed pledges ongoing support for economy

Bond Report

U.S. first-quarter GDP shrinks by 4.8%

U.S. Treasury yields rose Wednesday after the Federal Reserve said after its two-day meeting it would do everything it could to support the economy in face of the COVID-19 pandemic .

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
0.628%

was up 1.5 basis points to 0.625%. The 2-year note rate
TMUBMUSD02Y,
0.203%

was down 1.2 basis points to 0.197%, while the 30-year bond yield
TMUBMUSD30Y,
1.249%

climbed 3.6 basis points to 1.243%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

In its policy update, the Fed’s interest-rate setting committee said that the coronavirus pandemic presented a considerable risk to the medium-term outlook for the economy.

The U.S. central bank also added it would keep its policy interest rate at zero until it is confident the economy had weathered the downturn and was on track to reach its employment and inflation goals.

In the post-meeting press conference, Fed Chairman Jerome Powell said he expected the economic damage in the second quarter to be unprecedented and suggested that additional support from Congress in Washington would be needed to limit the downturn.

The Fed did not announce new initiatives on Wednesday, after already putting in place significant measures in the past few weeks to provide monetary stimulus and credit guarantees.

Hopes for a treatment for the COVID-19 disease boosted stocks Wednesday after U.S. pharmaceutical company after Gilead Science Inc.
GILD,
+5.68%

said its experimental drug remdesivir had met its main goal in a clinical study, but another study in China reported mixed results for the drug.

See: Fed says it will do everything it can to support economy facing public-health crisis

Economic data also commanded some attention, with the first official report card of U.S. economic growth showed the U.S. economy shrank by 4.8% between January and March, the biggest drop since 2008.

Analysts polled by MarketWatch had forecast gross domestic product to shrink by 3.9% in the first-quarter. Meanwhile, pending home sales in March dropped 20.8% in March, its lowest level since 2011.

What did market participants’ say?

“There’s nothing new in this announcement. The Fed is highlighting all the work it’s doing to support the economy and promising to do more if necessary. It’s sensible that the Fed take a brief pause to establish the impact of what they’ve already done. But they cannot afford to rest on their laurels,” said James McCann, senior global economist at Aberdeen Standard Investments.

See also: Here’s the latest on the Fed’s rescue programs to keep credit flowing during the coronavirus pandemic

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