"The front end of the yield curve liked the continued decline in the dot plot in 2016 and 2017," said Brandon Swensen, co-head of the fixed income desk at RBC Global Asset Management. "As long as the dots continue to head towards market expectations, rates don't need to move up to match the dot plot. The market continues to, correctly in our view, call the Fed's bluff on how high, and how fast, short rates will rise."
The major averages traded higher after wavering on the release of the Fed statement. The U.S. 10-year Treasury yield was 2.31 percent, unchanged for the day. The 2-year yield initially spiked before giving back early gains to trade at 0.67 percent.
"Investors are still digesting the news as to what this means but overall I don't think there were any surprises," said Myles Clouston, senior director at Nasdaq Advisory Services.
Equity gains were moderate. The Dow approached, but did not exceed, a 100-point gain, The index leaped more than 200 points after a dovish Fed statement in March.
"It's a little muted now because the Fed is contemplating on a consistent basis a change in rates," said Alan Rechtschaffen, financial advisor and senior vice president at UBS Wealth Management Americas. "At the same time, the news is good. The Fed is going to remain accomodative enough that the market can rally."
The dollar fell more than half a percent, with the euro near $1.134 and the greenback higher against the yen at 123 yen.
Stocks traded lower ahead of the release, giving back opening gains.
With consensus for a rate hike in September at the earliest, most investors did not expect major policy changes from the central bank's announcement.
"I think we're going to stay in this trading range," said Bruce Bittles, chief investment strategist at RW Baird. He noted that, in an encouraging sign, the S&P 500 twice held support at the 2,070 level, once last week and once on Monday. As stocks climb, he said 2,120 is the resistance level.
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However, analysts noted anticipations of a hawkish statement. Bond yields rose in early afternoon trade, with the U.S. 10-year Treasury yield gaining more than 5 basis points to 2.38 percent and the 2-year yield near 0.74 percent. The 10-year German bund yield gained to trade around 0.81 percent.
Traders also kept an eye on the Greece debt negotiations ahead of the euro group meeting of regional finance ministers on Thursday.
Greek negotiator Euclid Tsakalotos said in a Reuters report Wednesday that the country is willing to make concessions but pension cuts cannot be on the agenda. He confirmed that Athens does not have enough funds to make the debt repayment to the International Monetary Fund due on June 30.
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The European Central Bank raised the Emergency Liquidity Assistance for Greece to 84.1 euros from 83.0 euros. Greek banks are reliant on this funding and analysts warn that if the central bank curbs this liquidity, Greece may have no option but to impose capital controls.
"Greece is a threat (to the Fed) only if it's a threat to the markets," said Peter Cardillo, chief market economist at Rockwell Global Capital.