Treasury prices rally after Fed verdict

US 10-YR
US 30-YR

Treasury bonds cut gains on Wednesday after the Federal Reserve released the minutes of its most recent policy committee meeting.

The central bank slashed its forecast for U.S. economic growth this year but expressed confidence the recovery was largely on track and would allow it to begin raising interest rates in 2015.

Despite the cut from around 2.9 percent to a range of between 2.1 and 2.3 percent for 2014 growth, the central bank pushed ahead with plans to wind down one of its main stimulus programs by the end of the year, as widely expected.

It reduced its monthly asset purchases from $45 billion to $35 billion a month, divided between $20 billion of Treasury securities and $15 billion of mortgage-backed debt.

Benchmark 10-year notes rose 16/32 in price to yield 2.60 percent, down from 2.65 percent late on Monday. The 30-year bond also rose 1 5/32 in price to yield 3.38 percent.

Intermediate-dated treasurys also rose, with five-year notes gaining 5/32 in price to yield 1.72 percent.

An earlier version of this story appears below. Please check back for updates.

U.S. Treasurys prices rose on Wednesday as investors hedged some bets that bonds are likely to weaken, with expectations high that the Federal Reserve may strike a hawkish tone when it releases a statement from its policy meeting this afternoon.

Read MorePros: Here's what the Fed really needs to worry about

Prices had tumbled on Tuesday after a higher-than-expected consumer price inflation indicator led investors to prepare for the possibility that the Fed will be open to raising rates sooner than some had thought.

Investors have been more wary of central banks becoming more hawkish since Bank of England Governor Mark Carney surprised markets last Thursday by saying Britain could become the first major economy to tighten monetary policy since the 2008 financial crisis.

Two-year notes traded "special" on Wednesday, or at negative interest rates, in the repurchase agreement market (repo), indicating a number of investors are holding bearish bets on the bonds.

"We're seeing a little bit of short covering,'' said Jason Rogan, a managing director in Treasuries trading at Guggenheim Securities in New York. "It seems more like a short-covering rally rather than a change in expectations for today's Fed."

The Treasury yield curve steepened on Wednesday, which added a bid for bonds to cover short positions.

Read MoreMarkets' new game: Guess the rate hike timing

"Most people are in flattening trades, when it steepens back there is a short bid,'' said Tom Tucci, head of Treasurys trading at CIBC in New York.

The timetable for when each member of the Federal Open Market Committee expects policy to begin tightening will be among the most keenly scrutinized factors on Wednesday, as will any comments about interest rate hikes or slack in the economy from Fed Chair Janet Yellen, who is due to speak after the statement from the meeting is released.

The Fed is also seen as likely to reduce its U.S. economic growth estimates for this year, though it may leave expectations for 2015, when most expect the U.S. central bank to begin raising rates, unchanged.

Read MoreCNBC explains: Treasury bond prices and yields

The Fed is also widely expected to cut its bond purchases by another $10 billion.

Bonds were also lifted on Wednesday after Bank of England policymakers highlighted the need to increase rates gradually, boosting U.K. and U.S. government debt and helping stocks.

"The minutes were less hawkish than what Carney said last week,'' said Tucci.

Bank of England policymakers also said they were surprised earlier this month that markets had not priced in a higher chance of an interest rate rise this year, minutes of their June 4-5 policy meeting showed on Wednesday.

—By Reuters