December 19, 2018 / 8:04 PM / 7 months ago

TREASURIES-U.S. benchmark yields fall as Fed delivers slightly dovish rate hike

 (Recasts with Fed decision, adds quotes, updates prices)
    * Fed revises rate projections for 2019 to two, from three
    * Fed says "some" further gradual rate hikes needed
    * Two-year, 10-year yield curve flattens

    By Karen Brettell
    NEW YORK, Dec 19 (Reuters) - U.S. benchmark Treasury yields
fell to more than six-month lows on Wednesday after the Federal
Reserve lowered projections for rate hikes next year but did not
deliver as dovish a statement as some investors had expected.
    The U.S. central bank raised interest rates and noted that
"some" further gradual rate hikes would be needed, a subtle
change that suggested it was preparing to stop raising borrowing
    Fresh economic forecasts released on Wednesday showed
policymakers expect two rate hikes next year, a reduction from
three projected hikes the Fed made in September.             
    “This is somewhat in between; it wasn’t a totally dovish
hike,” said Subadra Rajappa, head of U.S. rates strategy at
Societe Generale in New York. “The fact that they retained the
language around ‘gradual’ I think confirms the current monetary
policy stance, which the market was hoping would turn a little
more data dependent.”
    Benchmark 10-year yields             fell to 2.78 percent
after the Fed statement, the lowest since May 30. The yields
have fallen from a seven-year high of 3.261 percent on Oct. 9.
    Two-year note yields           , which are the most
sensitive to interest rate increases, declined to 2.65 percent,
from around 2.66 percent before the Fed statement.
    The yield curve between two-year and 10-year notes
               flattened to 13 basis points, from 16 basis
    “It’s a disappointment to investors who were hoping it was
going to be more dovish than it turned out to be. A lot of
people were thinking they needed to change the language," said
David Jo, chief market strategist at Ameriprise Financial in
    Fed Chairman Jerome Powell in late November said that the
key interest rate was “just below” neutral, a level that neither
boosts nor brakes the economy, increasing speculation that the
U.S. central bank may pause hikes sooner than previously

 (Additional reporting by Chuck Mikolajczak in New York; Editing
by Cynthia Osterman)
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