By Joseph Adinolfi, MarketWatch
Treasury yields plummeted Wednesday after Federal Reserve policy makers signaled that, while an interest-rate increase this year remains likely, the pace of rate hikes would be slower than the market expected.
In a new conference after the meeting, Federal Reserve Chairwoman Janet Yellen acknowledged that the economy has improved markedly since the first quarter, citing improvements in household spending and consumer sentiment.
But the central bank will likely keep rates low even after employment and inflation have returned to what the Fed would consider "normal" levels, she said.
Yellen added that the Fed will remain data dependent, and that rate hikes won't be "mechanical."
The yield on the 10-year note was up just 0.6 basis points on the day to 2.320%, down from a session high of 2.394%. The yield on the two-year note was down 3.7 basis points to 0.653%, according to Tradeweb, down from a high of 0.738%.
The three-year Treasury was the outperformer on the curve. It's yield was down 5.5 basis points to $1.027%.
Guy LeBas, chief fixed income strategist at Janney Capital Markets, noted that the policy statement's language regarding interest-rate guidance was unchanged, and that policy makers didn't acknowledge a recent improvement in core CPI.
He said it was "puzzling" that policy makers didn't become "reasonably confident" that inflation is heading back toward the Fed's preferred 2% mark -- and that this seemed to contradict the Fed's dot plot, an illustration of policy makers' rate-hike projections, which implied that two rate hikes are likely in 2015.