U.S. Treasury yields climbed across the board Wednesday after the Federal Reserve stayed the course with its monetary policy plan and emphasized the strength of the domestic economy, affirming expectations that a further two rate increases are in store in 2018.
“Economic activity has been rising at a strong rate,” read the policy-making Federal Open Market Committee statement, which was released after a two-day gathering of its members led by Jerome Powell.
See: Fed holds interest rates steady but signals another hike is coming soon[1]
The 10-year U.S. government bond yield TMUBMUSD10Y, +1.32%[2] rose 3.7 basis points to 3.001%, hitting a psychologically significant level it hasn’t seen since May 23, according to Dow Jones Market Data.
The two-year note yield TMUBMUSD02Y, +0.00%[3] the most sensitive to monetary policy moves, inched 1.2 basis points higher to 2.682%. The 30-year bond yield TMUBMUSD30Y, +1.75%[4] known as the long bond, added 4.1 basis points to 3.126%.
The initial reaction to the Fed statement was muted but yields pushed higher in Wednesday afternoon trade as investors focused on the central bank’s outlook.
“There were very few changes in this policy statement, both in the tone and content,” said Ward McCarthy, chief financial economist at Jefferies. He said the FOMC continued to reflect “optimism about the economy,” adding that he saw the probability of rate hikes in September and December in play, with the expectation that the central bank may signal that it is approaching the so-called neutral rate, a level that will neither hinder nor boost economic expansion.
The FOMC voted unanimously to hold rates at a range between 1.75% and 2%, after raising rates in June.
The market is placing a nearly 90% probability of rate increase in September, according to CME Group data[5] after the statement.
The widely-expected Fed decision follows the release of the second-quarter gross domestic product that showed the U.S. economy expanded at a 4.1% rate, the strongest annualized rate in nearly four years.
In the Asian hours, U.S. yields initially took their cues from Japanese 10-year note TMBMKJP-10Y, +163.97%[6] which surged to 0.126% from 0.044% late Tuesday in New York, marking the biggest yield jump in 2 years, a day after the biggest yield...