* Fed says case strengthened for a U.S. rate increase
* But Fed revises down view of growth, interest rates
* Yields climb earlier as BOJ changes policy stance
* U.S. yield curve flattens, led by longer-dated yield drop
(Recasts; updates throughout, adds quotes)
By Richard Leong
NEW YORK, Sept 21 U.S. Treasury yields fell on
Wednesday after the Federal Reserve downgraded its economic
growth forecast and lowered its projection for interest rate
levels needed to support expansion.
At its two-day meeting which ended on Wednesday, the U.S.
central bank held its target range on short-term rates unchanged
at 0.25 percent to 0.50 percent, leaving the door open for a
possible rate increase in December. Three members of its
policy-setting group dissented, favoring a rate increase.
"While the case for a rate increase has strengthened, they
are not ready to raise rates yet," said Julien Scholnick,
portfolio manager at Western Asset Management Co in Pasadena,
Fed Chair Janet Yellen underscored the cautious approach of
most of the central bank's policy-makers.
"Since monetary policy is only modestly accommodative, there
appears little risk of falling behind the curve in the near
future," Yellen said during a press conference after the Fed
In late trading, benchmark 10-year Treasury notes rose 9/32
in price for a yield of 1.655 percent, down 3 basis points from
The yield gap between five-year and 30-year Treasuries
shrank to 119 basis points, which was its flattest in over a
The rally in longer-dated Treasuries after the Fed's
statement followed a global bond market sell-off on Wednesday
prompted by an abrupt Bank of Japan policy shift.
The BOJ said it would target the yield on the 10-year
Japanese government bond at zero percent to lift longer JGB
yields and improve bank profits. It would also allow inflation
to overshoot 2 percent.
The BOJ held its policy rate at -0.10 percent and left its
annual asset purchase at 80 trillion yen ($788 billion).
Investors may take at least a day before they decide how the
Fed and BOJ's latest policy signals would affect global yields.
"The market will try to digest what these changes mean,"
said Lisa Hornby, U.S. fixed income portfolio manager at
Schroders in New York.
The two-year Treasury yield, which is most sensitive to
traders' views on Fed policy, was flat on the day at 0.778
percent after touching 0.848 percent, its highest level in more
than three weeks, shortly after the Fed released its statement.
Federal funds futures implied traders saw about a 59 percent
chance the Fed would raise rates at its Dec. 13-14 meeting,
unchanged from Tuesday, according to CME Group's FedWatch
As of 1625 EDT (2025 GMT):
US T BONDS DEC6 166-29/32 29/32
10YR TNotes DEC6 130-180/256 52/256
Price Current Net
Three-month bills 0.22 0.2232 -0.079
Six-month bills 0.42 0.4267 -0.076
Two-year note 99-244/256 0.7744 -0.004
Three-year note 99-226/256 0.9149 -0.005
Five-year note 99-176/256 1.1903 -0.010
Seven-year note 99-84/256 1.4772 -0.022
10-year note 98-148/256 1.6563 -0.031
30-year bond 97-60/256 2.3798 -0.049
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 26.00 0.25
U.S. 3-year dollar swap 18.25 0.00
U.S. 5-year dollar swap 3.00 0.50
U.S. 10-year dollar swap -15.25 0.50
U.S. 30-year dollar swap -54.00 1.00
(Reporting by Richard Leong; Editing by Meredith Mazzilli and