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US Treasury yields whipsaw on Fed rate hike

U.S. Treasury yields traded in a back-and-forth range Wednesday after the Federal Reserve raised interest rates.

The decision, given the official stamp of approval from the Federal Open Market Committee, marks the first increase since the panel pushed the key rate to 5.25 percent on June 29, 2006.

"Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic conditions, the committee decided to raise the target range for the federal funds rate to ¼ to ½ percent," the FOMC's post-meeting statement said. "The stance of monetary policy remains accommodative after this increase, thereby supporting further improvements in labor market conditions and a return to 2 percent inflation."

Benchmark 10-year note yields rose to trade at 2.31 percent immediately after the announcement, before trading at 2.2995 percent. Two-year notes yielded more than 1 percent and held near those levels afterwards.

Longer-dated 30-year bonds yielded as much as 3.0356 percent after the decision, before trading at 3.0184 percent. Five-year yields hit a session high of 1.7772 percent, before falling back to 1.7456 percent.

US 10-year yieldsSource: FactSet

Nonetheless, FOMC officials made it excessively clear in post-meeting documents that the pace of increases will be gradual and dependent on the quality of economic data.

"I think 2 percent is about as high as we can go. I think it will take two to three years. I think the Fed's gradual emphasis is a correct one. We shall see. I don't think it's one and done. I think it's probably two and wait in terms of 2016," Bill Gross, lead portfolio manager of the Janus Global Unconstrained Bond Fund, told CNBC's "Power Lunch."

U.S. sovereign bonds prices fell ahead of the central bank's announcement, pushing yields higher.

Benchmark 10-year Treasury notes yielded 2.294 percent minutes ahead of the announcement, after closing at 2.266 percent Tuesday. Longer dated 30-year bond yields were at 3.02 percent after finishing at 2.991 percent.

On the short end of the curve, 2-year Treasury notes yielded about 0.984 percent broke above 1 percent for the first time since May 2010. Five-year Treasurys yielded 1.727 percent at the time.

The central bank was widely expected to raise the fed funds rate by a quarter point, while emphasizing that the pace of tightening will be gradual.

"Normally you raise rates by 2 and a half percent per year, on average … this will just be one percent per year." "Does the FOMC have the nerves to stick even to that?" David Kelly, chief global strategist at JPMorgan Funds, said before the announcement.

Other data releases due before the Fed decision included November housing starts and building permits, which rose 10.5 percent and 11 percent, respectively.

Industrial Production fell 0.6 percent in November and Capacity Utilization came in at 77 percent.

— CNBC's Jeff Cox contributed to this report.

Correction: A quote about the pending rate announcement by David Kelly was misattributed in an earlier version.