Treasury bonds extended gains on Thursday, pushing yields to session lows, after the Federal Reserve concluded its two-day policy meeting and decided to keep benchmark interest rates unchanged.
The yield on the benchmark 10-year Treasury note was at 2.217 percent, near a session low, after closing at 2.303 percent on Wednesday. The yield on the 30-year Treasury bond fell to 3.036 percent, after closing at 3.09 percent. The yield on a bond falls when its price rises.
Short-dated yields, which are highly sensitive to the Fed's monetary policy forecasts, also sat near session lows, with the two-year note yield giving up the week's gains. Two-year note yields tumbled 12 basis points, losing about 15 percent of their value, to 0.70 percent, after rising to a four-year high of 0.811 percent on Wednesday.
Equity investors piled into the iShares 20+ Year Treasury Bond ETF , which tracks the prices of government bonds with longer maturities, in a bet that rates will stay lower for longer. The ETF rose by more than 1 percent Thursday, paring its losses for the year to under 5 percent.
An argument can be made for an interest rate rise at this time, but "in light of the heightened uncertainties abroad and a slightly softer expected path for inflation," the committee wanted to wait for further improvement in the labor market, among other developments, to bolster its confidence that inflation would meet its targets, Fed chair Janet Yellen said in a news conference on Thursday.
Fed policymakers slightly lowered their projections for growth and inflation in the next two years, an outlook that likely factored into their decision to hold off on raising interest rates.
The "Fed is even more dovish this time because they don't see core inflation moving back to two percent until 2018," said Joseph Lavorgna, chief U.S. economist for Deutsche Bank.
The central banks also reduced its estimate for long-run unemployment to 4.9 percent from 5 percent. This suggests that it is willing to wait for unemployment to fall further before cutting rates. Unemployment stands at 5.1 percent.
"The Fed follows the bond market. The bond market loudly advised against a hike and the Fed, true to form, listened," Jeffrey Gundlach, founder of Doubleline Capital, told CNBC after the decision.