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US Treasurys extended losses Wednesday, with the 30-year bond dropping more than a point, following a Federal Reserve statement that held interest rates steady and said rates would stay low for an "extended" period.
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As expected, the Fed kept its benchmark federal funds rate unchanged in a range of zero to 0.25 percent, and said the economy had "continued to pick up" since its last policy-setting meeting in September.
"The Fed just kicked the can down to the next meeting, which will now probably be when they remove the 'extended period' language," said John Canally, economist at LPL Financial in Boston.
The benchmark U.S.
10-year Treasury notewas down 21/32 in price after the report, but down just 6/32 afterwards. Its yield was 3.50 percent, still up from 3.47 percent late Tuesday.
U.S. government securities prices were lower earlier as traders also prepared themselves for next week's Treasury refunding.
Dealers must make room for new supply that will arrive next week. The Treasury said earlier on Wednesday it would sell $40 billion in three-year notes, $25 billion in 10-year notes, and $16 billion in 30-year bonds next Monday, Tuesday and Thursday, respectively.
Investors often move to cheapen Treasurys prices ahead of such auctions.
Treasuries previously cut losses after the Institute of Supply Management said its monthly overall reading on the non-manufacturing sector was weaker than forecast.
Thirty-year bonds plunged, falling 1-13/32, yielding 4.42 percent versus 4.33 percent Tuesday.
The U.S. service sector grew in October for the second consecutive month but at a slower pace than forecast, according to the ISM report. The non-manufacturing index eased to 50.6 last month from 50.9 in September, below economists' median forecast for a rise to 51.5. The line between growth and contraction is 50.
Attention Shifts to Fed
Analysts also said it is too soon for the Fed to even hint toward an exit from ultra-loose policy by tweaking its pledge to keep rates extraordinarily low for an "extended period."
William Sullivan, chief economist at JVB Financial Group in Boca Raton, Fla., said despite some improved data in the housing and industrial sectors, the economic recovery process was "tenuous" and would be hurt by tighter monetary policy.
The most significant outcomes of the Fed's last two policy meetings concerned its purchases of U.S. government and mortgage-related debt.
The Fed stopped buying longer-term Treasury debt last week, while the mortgage-related asset purchase program has been extended into early 2010 to allow for an orderly winding down.
Earlier, the ADP report on private employment said 203,000 jobs were lost in the U.S. private sector in October, more than the Reuters forecast for a loss of 190,000 jobs, but the fewest number of jobs lost since July 2008.
The most influential U.S. economic report this week is the October nonfarm payroll report due Friday.
The median of forecasts from economists polled by Reuters is for payrolls to have contracted by 175,000 after narrowing by 263,000 jobs in September.
Two-year notes were down mostly flat, their yields slipping a notch to 0.92 percent from 0.93 percent on Tuesday. Five-year Treasury notes were down 6/32 in price, their yields rising to 2.39 percent from 2.36 percent late Tuesday.
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