NEW YORK: US Treasury prices rose on Wednesday after the Federal Reserve, as expected, left policy rates unchanged and offered no hint it was in a rush to raise them even as it acknowledged fewer near-term risks in its outlook on the US economy.
The Fed's latest policy statement spurred traders to favor longer-dated bonds over shorter-dated issues in the form of curve-flattening trades.
More bullish bets on 10-year and 30-year Treasuries sent their yields to 1-1/2 week lows. They briefly narrowed the spread between shorter-dated and longer-dated yields to the tightest level since March 2015, according to Tradeweb.
"Near-term risks to the economic outlook have diminished," the Fed's policy-setting Federal Open Market Committee said following a two-day meeting.
The FOMC gave nod to improvement in the labor market and consumer spending, with little fallout so far from Britain's surprising decision to leave the European Union last month. But policymakers remained concerned about weak business investment and an inflation rate stuck below the Fed's 2 percent target.
"They are in risk management mode," said Dennis McNamara, portfolio manager at Western Asset Management Co. in Pasadena, California, adding that the Fed will unlikely raise rates in September.
Interest rates futures implied traders saw an 18 percent chance of a rate hike at the FOMC's Sept. 20-21 meeting, against a 21 percent chance prior to the latest statement and a 20 percent chance on Tuesday, according to CME Group's FedWatch program.
Prior to the latest Fed statement, a steeper-than-forecast 4 percent drop in demand for airplanes and other big-ticket items revived worries about the domestic manufacturing sector.
Another factor underpinning the fall in US yields was expectations of more stimulus from the Bank of Japan following Japanese Prime Minister Shinzo Abe's plan for a surprisingly large $265 billion stimulus package in an effort to boost his country's sluggish economy.
The two-year Treasury yield, which is sensitive to traders' views on Fed policy, fell 3 basis points to 0.734 percent. It reached 0.778 percent on Tuesday, its highest since Britain's vote to leave the European Union on June 23.
Benchmark 10-year Treasury notes were up 12/32 in price for a yield of 1.520 percent, down 4 basis points from late on Tuesday, while the 30-year bond was up 1-1/32 in price to yield 2.234 percent, down nearly 5 basis points.
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