U.S. Government bond yields fall after FOMC keeps federal fund rate unchanged

The US Treasuries were pushed higher across the curve Thursday following the release of the September FOMC statement that left rates unchanged, highlighted balanced risks to the economic outlook and saw three dissenting voters (each preferring to raise the target range for the federal funds rate to 0.50-0.75 percent).

The yield on the benchmark 10-year Treasury note fell nearly 3 basis points to 1.641 percent, the yield on 5-year bond dipped 1-1/2 basis points to 1.182 percent and the yield on short-term 2-year note also slid 1-1/2 basis points to 0.774 percent by 12:10 GMT.

The Federal Open Market Committee left fed funds rate unchanged in a 0.25-0.50 percent range, in line with market expectations. One key highlight of the statement was the note that near-term risks to the economic outlook appear roughly balanced. However, the Committee continues to closely monitor inflation indicators and global economic and financial developments.

Additionally, the statement noted that information received since the July meeting indicates that the labour market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. This is shows renewed support for the outlook, advancing from the improvement noted in the July statement. After the Fed policy decision, the United States benchmark 10-year Treasury yield fell below 1.65 percent mark.

Moreover, the updated individual Fed forecasts for 2016 revealed GDP lower at 1.7 percent to 1.9 percent, from previous forecast of 1.9 percent to 2.0 percent, unemployment rate at 4.7 percent to 4.9 percent, from 4.6 percent to 4.8 percent and PCE inflation at 1.2 percent to 1.4 percent, from previous estimates of 1.3 percent to 1.7 percent.

Longer-term inflation expectations kept unchanged at 2.0 percent, alongside longer-run unemployment at 4.7 percent to 5.0 percent. Overall, the median forecast for the midpoint of the target rate/range is around 0.625 percent by the end of 2016, down from 0.875 percent and 1.125 percent by the end of 2017, down from 1.625 percent.

Lastly, markets now look ahead to a greater flow of data on Thursday, highlighted by jobless claims, existing home sales and leading indicators release, followed by a 10-year TIPS auction later in the session.

Meanwhile, the S&P 500 Futures traded 7 points higher at 2,163 by 12:10 GMT.