US yields fall after Fed cuts rate hike view

NEW YORK: US Treasury yields fell across the board on Wednesday after the Federal Reserve, as expected, held interest rates steady while revising its outlook for interest rate increases to just two by the end of the year.

At the December meeting of the Federal Open Market Committee, the US central bank projections showed at least four rate increases for 2016.

Prior to the outcome of the FOMC meeting, US two-year note yields touched 1 percent, a 10-week high, before sliding to the day's low after the Fed statement. US 10-year notes, on the other hand, briefly hit 2 percent going into the release of the Fed decision, a seven-week high, but fell to session lows as well.

Investors were expecting a more upbeat outlook from the Fed on the US economy and interest rates, given generally upbeat economic data over the past month and a half, as well as a more stable global financial market environment.

"A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months," the Fed said in a policy statement.

"However, global economic and financial developments continue to pose risks" and will keep inflation low for the remainder of 2016, it said. Benchmark 10-year Treasury notes were last up 4/32 in price for a yield of 1.948 percent, down from 1.973 percent late on Tuesday.

The 30-year bond was, however, down 16/32 in price, yielding 2.746 percent, up from 2.744 percent on Tuesday. US two-year notes rose 4/32 to yield 0.895 percent, compared with 0.980 percent on Tuesday. Yields touched 1 percent, their highest since Jan. 8.

"Our first take on (the Fed statement) is that it probably leans slightly more dovish, relative to expectations," said Tom Porcelli, chief US economist, at RBC Capital Markets in New York.

"Most folks were looking for a slightly hawkish statement and they did not deliver on that; it's balanced at best and probably even slightly dovish."

Following the FOMC meeting, the rate futures market now sees a 43 percent likelihood the Fed will raise rates for the first time this year in June, compared with 51 percent before the release of the Fed statement, according to CME Group's FedWatch program.

A second rate increase by December is seen as having an 73 percent chance, compared with 83 percent before the Fed decision.