NEW YORK: US Treasury yields fell on Friday, extending the previous day's declines after the Federal Reserve kept interest rates unchanged Thursday and doubts grew as to whether it would tighten policy at all this year.
The Fed held off on a move in a bow to worries about the global economy, financial market volatility and sluggish inflation at home.
But it left open the possibility of a modest policy tightening later this year.
Analysts said the Fed's message was dovish. US two-, five-, and seven-year note yields hit their lowest levels in over three weeks Friday of 0.66 percent, 1.43 percent, and 1.83 percent, respectively, while benchmark 10-year yields hit their lowest in a week-and-a-half at 2.13 percent. Three-year yields hit their lowest in two weeks at 0.96 percent.
"The market is doubting whether or not the Fed is going to hike rates in December," said Marc Bushallow, director of fixed income at Manning & Napier in Rochester, New York. Yields on US Treasuries maturing between 2-30 years were on track to post modest declines for the week.
In early US trading, federal funds futures implied traders see a 42 percent chance the Fed would raise rates in December and a 52 percent chance it would normalize rate policy in January.
Yellen explicitly noted Thursday that the central bank was focusing on the slowdown in China and emerging markets, saying one key issue is whether there might be a risk of a more abrupt slowdown in China.
Analysts said the low likelihood that overseas economies would improve significantly between now and December made it less probable that the Fed would hike rates this year.
The declines in longer-dated yields also showed a flight to safety, said Krishna Memani, chief investment officer at OppenheimerFunds in New York.
He said that uncertainty over the timing of the Fed's rate liftoff would remain for longer given the Fed's decision to delay, resulting in a riskier investing environment and greater demand for safe-haven Treasuries.
US 30-year Treasury bonds were last up 2-3/32 in price to yield 2.93 percent, from a yield of 3.04 percent late Thursday. Benchmark 10-year notes were last up 25/32 in price to yield 2.13 percent, from a yield of 2.22 percent late Thursday.
Two-year notes were last up 1/32 in price to yield 0.68 percent, from a yield of 0.70 percent late Thursday.