(Updated from 2:34 p.m. ET)
Treasuries were mixed immediately after the
Federal Reserve announced it had reduced short-term interest rates by 25 basis points to 3.75%.
Government securities climbed earlier today in anticipation of the
Fed's decision, which came around 2:15 p.m. ET. But after the announcement, the two-year Treasury note, which reacts most dramatically to changes in monetary policy, dipped, and was lately falling by 4/32 to 100 9/32, yielding 4.806%. Yields and prices move in opposite directions.
The 10-year benchmark note, which fell to new lows for the month Tuesday, recently lost 1/32 to 98 8/32, raising the yield to 5.233%. Meanwhile, the inflation-sensitive 30-year Treasury bond gained 18/32 to 96 18/32, yielding 5.614%.
In its statement, the Fed, which has cut interest rates six times since Jan. 3, noted that signs continue to indicate weakness in the economy. The central bank didn't suggest the possibility of an intermeeting rate cut prior to its next meeting on Aug. 21.
"The shorter end is disappointed, though the long end is fine," said Mike McGlone, vice president of options trading at
Aubrey G. Lanston
. "It seems that a lot of the market had priced for a 50 basis point cut, and didn't get it. The long bond likes the fact that the Fed seems less aggressive."
Wall Street had been divided on the extent of the cut up until the very end. Treasuries fell Tuesday as the latest economic reports, which showed stronger-than-expected
durable goods orders for May, dampened expectations the Fed would cut by 50 basis points today.
In its statement today, the
Federal Open Market Committee said it continues to believe "the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future," even as "continuing favorable trends bolster long-term prospects for productivity growth and the economy." The statement added that "the associated easing of pressures on labor and product markets are expected to keep inflation contained."
Kathleen Camilli, the director of economic research at
, believes the Fed will lower rates to 3% by the end of the year. "The last time they cut rates, the yield curve steepened with the long end fearing inflation," she said. "In light of that, my guess is perhaps they decided to take a slower pace. And they got the reaction they wanted -- the yields coming down."