CME CME Group Inc

By Sam Goldfarb 

U.S. government bonds held on to earlier price gains Wednesday after the Federal Reserve left interest rates unchanged.

In recent trading, the yield on the benchmark 10-year Treasury note was 1.787%, according to Tradeweb, compared with 1.785% before the Fed's statement and 1.822% Tuesday. Yields fall when bond prices rise.

The yield on the two-year note, which is highly sensitive to the Fed's policy outlook, was 0.817% in recent trading, compared with 0.813% before the statement and 0.829% Tuesday.

The Fed essentially matched the expectations of investors, who were betting that the central bank would hold off on raising rates this month but move at its next meeting in December for the first time since it raised rates at the end of last year.

Bond prices had climbed earlier in the day amid continued anxieties related to the U.S. presidential election.

Government bonds sold off sharply last month in part because of improved global economic data, rising inflation expectations, concern about less bond buying by major central banks and discussion about increased spending from governments that would require more debt issuance.

Bonds, though, have rebounded this week, as investors turned their attention to next week's. election, which is looking increasingly like a close contest between the Democratic nominee Hillary Clinton and Republican nominee Donald Trump.

Although Mrs. Clinton was previously expected to win handily, polls have tightened recently, forcing investors to price in the possibility of a victory by Mr. Trump, who is widely viewed as the candidate more likely to bring uncertainty to government policies.

Stocks, which fell last month, have come under further pressure, and investors have piled money into bonds, which are viewed as haven assets.

Despite a solid report on U.S. manufacturing on Tuesday, uncertainty caused by the election "is counteracting any bright spots that we're seeing in the economy," said Jody Lurie, director in the fixed-income strategy and research department at Janney Montgomery Scott LLC in Philadelphia.

Also providing a boost to bonds has been the recent drop in oil prices, which has weighed on stock prices and tempered the recent increase in inflation expectations, analysts said.

Investors are also looking ahead to Friday's nonfarm payrolls report, which could further bolster the odds of a December rate rise if it shows continued strength in the labor market.

A private survey showed on Wednesday that businesses across the country added 147,000 workers in October, the smallest increase since May. However, the September total was revised up to 202,000 from 154,000.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

November 02, 2016 14:49 ET (18:49 GMT)

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