NEW YORK – Treasury prices slid sharply on Wednesday after the Federal Reserve (search) cut U.S. interest rates (search) by only a quarter of a point when many bond bulls had been betting on a more aggressive half-point easing.
The Fed was widely expected to cut but there had been deep divisions on whether the easing would be 25 or 50 basis points. Dealers had also been hoping the Fed would implicitly promise to keep rates low for an extended period of time but in the event the wording of the statement fudged the issue.
The Fed said the probability of a substantial fall in inflation, though minor, exceeded that of a pickup, so on balance: "the latter concern is likely to predominate for the foreseeable future."
The lack of an explicit bias toward weakness, coupled with new supply both in Treasuries and corporate paper, pushed yields higher across the curve. The yield on the old two-year note (search) rose to 1.20 percent from 1.10 percent late on Tuesday. The benchmark 10-year note (search) fell 19/32 in price, taking its yield to 3.32 percent from 3.25 percent.
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