* Yields climb earlier as BOJ changes policy stance
* Traders await Fed economic forecasts, Yellen press
* U.S. yield curve flattens, led by short-dated yield rise
By Richard Leong
NEW YORK, Sept 21 U.S. 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.
U.S. 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).
U.S. 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
"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
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).
September 21 Wednesday 10:56AM New York / 1456 GMT
US T BONDS DEC6 165-26/32 -0-6/32
10YR TNotes DEC6 130-80/256 -0-48/25
Price Current Net
Yield % Change
Three-month bills 0.28 0.2841 -0.018
Six-month bills 0.4775 0.4853 -0.018
Two-year note 99-228/256 0.8069 0.029
Three-year note 99-196/256 0.9549 0.035
Five-year note 99-130/256 1.228 0.028
Seven-year note 99-12/256 1.5202 0.021
10-year note 98-40/256 1.7032 0.016
30-year bond 96-20/256 2.4354 0.006
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 25.25 -0.50
U.S. 3-year dollar swap 17.00 -1.25
U.S. 5-year dollar swap 2.75 0.25
U.S. 10-year dollar swap -15.50 0.25
U.S. 30-year dollar swap -54.25 0.75
(Reporting by Richard Leong; Editing by Meredith Mazzilli)