NEW YORK: US Treasury yields rose on Wednesday as the Federal Reserve held a two-day policy meeting where investors widely expect the central bank to hold short-term interest rates but leave the door open for an increase at the end of the year.
US yields initially climbed on selling in bond markets worldwide following a policy reboot from the Bank of Japan.
The BOJ said it will target the yield on the 10-year Japanese government bond at zero percent in an effort to lift longer JGB yields and improve bank profits. It will also allow inflation to overshoot 2 percent.
It held its policy rate at -0.10 percent and left its annual asset purchase at 80 trillion yen ($788 billion).
US yields briefly turned flat on speculation the BOJ may lower rates and enlarge its asset purchases later this year before they rose again on traders hedging the probability the Fed may decide to raise short-term interest rates at its latest policy meeting.
"The yield curve is flattening with the front end taking the brunt of it," said Brian Edmonds, head of rates trading at Cantor Fitzgerald in New York.
Two-year Treasury yield was up 3 basis points on the day at 0.807 percent, still below a near three-month peak of 0.853 percent set in late August, according to Reuters data.
The yield gap between two-year and 30-year Treasuries shrank to 162.5 basis points from 165.4 basis points late on Tuesday.
Benchmark 10-year Treasury notes were down 4/32 in price for a yield of 1.703 percent, up over 1 basis point from Tuesday's close.
The Fed is unlikely to move later on Wednesday, and the market will then shift its focus to December, Edmonds said. "December is their last chance to move this year."
Federal funds futures implied traders saw a 15 percent chance the Fed would raise rates at its current meeting and a 60 percent chance it would hike rates at its Dec. 13-14 meeting, according to CME Group's FedWatch program.
In addition to the Fed's policy statement set for release at about 2 p.m. (1800 GMT), investors awaited quarterly economic projections in which analysts expect Fed officials to lower their outlook on the number of rate increases in 2017 and 2018.
Fed Chair Janet Yellen will hold a press conference at 2:30 p.m. (1830 GMT).