NEW YORK: US Treasury yields plummeted on Wednesday after the Federal Reserve raised interest rates for the second time in three months as expected, but did not flag any plan to accelerate the pace of monetary tightening.
US two- and three-year yields, which are most vulnerable to Fed policy, fell from multiyear highs touched during morning US trading after the Fed said in its policy statement that further rate increases would only be "gradual," with officials sticking to their outlook for two more rate hikes this year and three more in 2018.
The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent marked one of the Fed's most convincing steps yet in the effort to return monetary policy to a more normal footing.
"Many in the market had positioned for a bit more of a hawkish-sounding Fed in the statement and the (outlook) than was actually delivered," said Mark Cabana, head of US short rates strategy at Bank of America Merrill Lynch in New York.
US two- and three-year yields sank to eight-day lows after the statement of 1.308 percent and 1.598 percent, respectively. Those yields had touched their highest since June 2009 and April 2010, respectively, before the statement.
US long- and medium-dated yields also fell, with 30-year and benchmark 10-year yields hitting one-week lows of 3.114 percent and 2.513 percent, respectively. Seven- and five-year yields hit eight-day lows of 2.312 percent and 2.021 percent, respectively.
Benchmark 10-year Treasuries were last up 17/32 in price to yield 2.533 percent, from a yield of 2.595 percent late Tuesday.
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