NEW YORK (Reuters) - Bonds posted modest gains Tuesday after the Federal Reserve raised interest rates by a quarter percentage point and issued a statement assuring traders that any future hikes would come at a "measured" pace.
The dollar traded relatively unchanged after it suffered from wider-than-expected trade deficit numbers and then got a slight boost from the Federal Reserve rate hike.
The benchmark 10-year note gained 7/32 of a point to 100-31/32 to yield 4.13 percent, up from 4.15 late Monday. The 30-year bond jumped 18/32 of a point to 108-30/32 to yield 4.77 percent, up from 4.81 on the session. Bond prices and yields move in opposite directions.
The two-year note remained unchanged to yield 2.97 percent, while the five-year note gained 4/32 of a point to yield 3.52 percent.
The lack of change in the Fed's language was welcome news to those who feared the central bank might seize on recent positive economic data to abandon its pledge to be "measured" in hiking official rates.
However, the absence of any hint of a future pause in monetary tightening offered little solace to bond bulls hoping for a slowdown in the pace of rate hikes.
"For anyone who thought they might raise again at the next meeting and then pause for a while, that's looking a little optimistic," said Daniel Portanova, a managing director at Gartmore.
Much like last time around, the Fed said risks to the economy remained balanced between inflation and renewed weakness, adding that inflation expectations remained in check.
Earlier, news of yet another record trade deficit had left bonds in the red. The deficit ballooned to a record $55.46 billion in October when analysts had looked for only a modest increase to $53.0 billion.
Bond investors have become increasingly worried that an ever-sliding dollar could scare investors away from U.S. assets.
In currency trading, the euro bought $1.3305, down from $1.3316 late Monday.
The dollar bought ¥105.54, up from ¥104.72 late Monday, after slipping to about ¥104.77 just after the deficit report's release.
Early Tuesday the dollar escaped a battering after news the U.S. trade deficit widened in October to a record $55.5 billion from a downwardly revised $50.9 billion in September.
The Fed hike provided relief for the greenback in afternoon trading. Higher or more rapidly rising interest rates tend to support the dollar, since they boost yields for some U.S.-based assets such as short-term debt, enhancing their appeal to global investors.
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