March 15, 2017 / 8:43 PM / 10 months ago

TREASURIES-Yields plunge after Fed hikes rates, sticks to outlook

    * Fed hikes rates for second time in three months
    * Fed sticks to outlook for two more rate hikes this year
    * 2-, 3-year yields fall from multiyear highs to 8-day lows
    * Long-, medium-dated yields also fall

 (Updates prices, adds analyst comment)
    By Sam Forgione
    NEW YORK, March 15 (Reuters) - U.S. 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.
    U.S. two- and three-year yields, which are most vulnerable
to Fed policy, fell from multiyear highs touched during morning
U.S. 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. 
    The projections for just two more rate hikes in 2017 was
viewed as dovish, however, since JPMorgan economist Michael
Feroli and others speculated prior to the decision that an
increase to four hikes for the entirety of this year was a
    "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 U.S. short rates
strategy at Bank of America Merrill Lynch in New York.
    Fed Chair Janet Yellen said in a press conference following
the decision that risks to the global economy were more
balanced, but that she expected policy to remain accommodative
for some time. 
    U.S. two- and three-year yields sank to eight-day lows after
the statement of 1.303 percent and 1.590 percent, respectively.
Those yields had touched their highest since June 2009 and April
2010, respectively, before the statement. 
    U.S. long- and medium-dated yields also fell, with 30-year
 and benchmark 10-year yields hitting
eight-day lows of 3.094 percent and 2.497 percent, respectively.
Seven- and five-year yields hit nine-day
lows of 2.296 percent and 2.006 percent, respectively. 
    "The market was concerned about potential acceleration and,
if anything, it was a deceleration in the confidence about the
future pace and that’s allowing the bond market to take yields
modestly lower right afterwards," said Matt Toms, Chief
Investment Officer of fixed income at Voya Investment Management
in Atlanta. 
    Benchmark 10-year Treasuries were last up 26/32 in price to
yield 2.500 percent, from a yield of 2.595 percent late Tuesday.
Two-year notes were last up 5/32 in price to stand at
their session low yield of 1.303 percent, from a yield of 1.380
percent late Tuesday. 
      March 15 Wednesday 4:30PM New York / 2030 GMT
 US T BONDS JUN7               148-9/32     1-14/32   
 10YR TNotes JUN7              123-192/256  0-224/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.72         0.7313    -0.044
 Six-month bills               0.8625       0.8783    -0.054
 Two-year note                 99-168/256   1.3034    -0.077
 Three-year note               100-26/256   1.5901    -0.094
 Five-year note                99-94/256    2.0097    -0.113
 Seven-year note               98-216/256   2.3058    -0.108
 10-year note                  97-204/256   2.5021    -0.093
 30-year bond                  97-200/256   3.1145    -0.059
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        34.00         1.50    
 U.S. 3-year dollar swap        25.75         0.75    
 U.S. 5-year dollar swap        10.75         1.00    
 U.S. 10-year dollar swap       -3.25         0.00    
 U.S. 30-year dollar swap      -38.75        -0.50    

 (Reporting by Sam Forgione; additional reporting by Dion
Rabouin; Editing by Lisa Shumaker and Diane Craft)

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