NEW YORK (CNNfn) - Treasury bonds ended higher Tuesday on the heels of an interest rate hike and policy statement from the Federal Reserve that was consistent with analysts' expectations.|
"There's a little bit of relief that the Fed wasn't more aggressive," said Kevin Logan, senior market economist at Dresdner Kleinwort Benson.
The central bank increased the federal funds rate, the rate banks charge each other for borrowing money, by a quarter point to 6 percent. In addition, it increased the discount rate, the rate the Fed charges its member banks for loans, by a quarter point to 5.5 percent, in line with expectations.
Shortly before 3 p.m. ET, the 30-year bond rose 16/32 to 103-29/32. Its yield, which moves inversely to its price, fell to 5.96 percent from 5.98 percent Monday. Ten-year Treasury notes gained 11/32 to 102-19/32, their yield falling to 6.14 percent from 6.17 percent Monday.
In an ongoing process to slow the red-hot economy and keep inflation at bay,
the Fed continued its "gradualist" approach of raising rates by a quarter point. The action represents the fifth tightening since June, leaving the fed funds rate at its highest level since early 1995.
In a statement accompanying the announcement, the Fed reiterated its concerns about inflation. "The Committee remains concerned that increases in demand will continue to exceed the growth in potential supply, which could foster inflationary imbalances..."
But while longer-dated maturities such as bonds moved higher, shorter-dated issues such as two-year notes remained under pressure. These issues are more sensitive to changes in monetary policy.
Tony Crescenzi, senior market strategist at Miller Tabak & Co., said the statement was consistent with the markets' belief that more tightening will be necessary. Many analysts expect another quarter point hike at the next meeting on May 16.
"The short-end is having a tough time with the rate increases," he said.
With the Fed out of the way, investors again will turn to the equities markets and economic data to determine upcoming monetary policy.
The latest economic news had no apparent market effect as the Fed took the spotlight. The U.S. trade deficit widened to a record $28 billion in January against a revised $24.6 billion in December, according to the Commerce Department.
The dollar rose against the major currencies Tuesday. Shortly before 3 p.m. ET, the dollar changed hands at 107.01 yen, up from 106.37 yen Monday, a 0.6 percent gain in the dollar's value.
Meanwhile, the euro traded at 96.47 cents, down from 97.28 cents Monday, a 0.8 percent gain in the dollar's value.