US Treasuries rally as Fed keeps policy rate steady, lowers economic outlook

The US Treasuries rallied on Thursday in the wake of the June FOMC meeting that saw a diminished outlook for growth coupled with largely downgraded forecasts for the overnight rate, though median expectations remain unchanged for 50 basis points worth of tightening in 2016. Also, investors were cautious after recent polls suggested Britain is on course to leave the European Union.

The yield on the benchmark 10-year Treasury note fell more than 3 basis points to 1.562 percent and the yield on short-term 2-year Treasury note also dipped 1/2 basis point to 0.681 percent by 12:30 GMT.

Following the global debt market, the yield on the benchmark 10-year UK gilts fell 2 basis points to an all-time low of 1.105 percent. The Australian 10-year Treasury note yield fell nearly 6 basis points to 2.014 percent. The 10-year JGB yield added half a basis point to minus 0.190 percent, after plumbing a record low of minus 0.210 before the BOJ's announcement. German 10-year bund yield fell to an all-time low of minus 0.034 percent after the US Federal Reserve lowered its economic growth forecasts and scaled back its rate hike projections, while keeping its benchmark policy rate unchanged at a record low.

The Federal Open Market Committee left fed funds rate unchanged in a 0.25-0.50 percent range, as expected. One key highlight of the statement was the note that the pace of improvement in the labour market has slowed while growth in economic activity appears to have picked up, adding that although the unemployment rate has declined, job gains have diminished.

Also, FOMC diminished outlook for growth coupled with largely downgraded forecasts for the overnight rate, though median expectations remain unchanged for 50 basis points worth of tightening in 2016.

The June statement reiterated that inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Additionally, the June statement repeated that inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labour market strengthens further. In terms of risks, the Committee continues to closely monitor inflation indicators and global economic and financial developments.

In addition, the latest polls by various corporate bodies in the United Kingdom in run up to the June 23 Brexit referendum indicate that the percentage of citizens in favor of "leaving" the European Union (EU) has outnumbered those who want to "remain", raising the possibility that Britain might leave the EU after 43 years of membership in the bloc.

According to a new UK poll by Ipsos-Mori, 53 percent participants favoured leaving the EU and 47 percent supported for remaining. This is in line with the other recent surveys showing a swing to a moderate pro-Brexit balance, but contrasts markedly with the previous IPSOS-Mori poll in May that found a double-digit net balance in favour of 'Bremain'.

Lastly, Markets now look ahead to consumer prices, current account, jobless claims and Philadelphia Fed manufacturing data on Thursday, ahead of housing starts/build permits on Friday.

Meanwhile, S&P 500 Futures rose 10.50 points to 2,053 by 12:30 GMT.