U.S. bonds rally after Fed; stocks retreat

Wed Jan 28, 2015 4:41pm EST
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By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. bond prices rallied, with the 30-year yield hitting a record low on Wednesday as investors bet U.S. rate hikes were less likely to start soon after the Federal Reserve said inflation was running below forecasts.

U.S. stocks, after spending most of the session higher, reversed course and fell, with the S&P 500 ending more than 1 percent lower. The dollar strengthened.

Some stock investors saw Fed officials as more upbeat on the U.S. economy, suggesting they will stick with their plan for raising interest rates by mid-year.

Thirty-year bonds US30YT=RR were last up 2-18/32 in priceto yield 2.29 percent after setting a record low of 2.273percent, according to Thomson Reuters data.

Other maturities, including the 10-year US10YT=RR, also rose in the rally following the statement from the Fed, which repeated it will remain "patient" in beginning to normalize monetary policy. The statement concluded the Fed's first policy-setting meeting of the year.

The Fed's mention of international developments was "probably perceived as dovish" and caused the bond market to rally, said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

"International developments will likely slow them down (more) than speed them up. They introduce that as a risk. They upped their view on growth to strong from solid. They went the other way on inflation," he said.

The Fed said it would take "financial and international developments" into account when determining when to raise rates. In its last statement in December, the Fed had only noted "financial developments."   Continued...

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. REUTERS/Kim Hong-Ji