Treasurys slip after Fed holds rates steady

NEW YORK (CNNMoney.com) -- Treasurys mostly fell Wednesday, giving back earlier gains, after the Federal Reserve held interest rates steady and said economic conditions continue to stabilize.

In a widely expected move, the U.S. central bank announced plans to hold its fed funds rate, a key overnight rate, at historic lows near 0%. It also reiterated that economic conditions will likely remain weak enough to require "exceptionally low" rates for an "extended" period of time.

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But the Fed also cited a number of areas of the economy that are getting stronger, including the housing market and consumer spending. It said the labor market and business investment continue to lose ground, albeit at a slower pace.

The central bank noted that conditions in the financial markets have improved, and that it will allow most of its asset purchase programs, launched during the height of the financial crisis, to wind down on schedule.

The comments came at the conclusion of a two-day meeting and were published in a brief policy statement.

"The key elements of the statement are unchanged," wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a research note.

The statement was "slightly more upbeat on growth," he said, pointing to the Fed's acknowledgement of improved labor and financial market conditions. But he added that the bankers remain wary of potential threats to the economy, including tight credit and reduced household wealth.

Given the challenges still facing the economy, the Fed expects inflation to remain subdued for some time.

Bond prices were supported earlier in the day after a government report showed that inflation was tame in November.

The Commerce Department's Consumer Price Index (CPI), a measure of consumer inflation, rose 0.4% after climbing 0.2% the previous month, matching expectations.

Core CPI, which excludes volatile energy and food prices, was unchanged from the prior month, compared to the expected gain of 0.1% for November, according to a Briefing.com consensus.

The bond market pays close attention to the government's inflation gauges, since the value of fixed-income assets is severely eroded by rising prices.

Bond prices. The benchmark 10-year note slipped 1/32 to 98 6/32 and its yield rose to 3.59% from 3.58% late Tuesday. Bond prices and yields move in opposite directions.

The 30-year long bond fell 3/32 to 97 15/32 and its yield was 4.52%.

However, the 2-year note, which is the most sensitive to changes in monetary policy, gained 1/32 to 99 26/32 in price. Its yield was 0.83%.