Bonds

US Treasury yields whipsaw after Fed leaves rates unchanged

U.S. Treasury yields whipsawed on Wednesday after the Federal Reserve kept interest rates unchanged, as was largely expected.

The yield on the benchmark 10-year Treasury note traded at 2.959 percent at 2:09 p.m. ET, while the yield on the two-year note yield climbed to 2.500 percent. Initially, both yields rose on the news.

Treasurys

On Wednesday, the U.S. central bank did not raise interest rates, but did point to higher inflation ahead.

The committee noted that "overall inflation and inflation for items other than food and energy have moved close to 2 percent." That was an upgrade from the March meeting in which the FOMC said the indicators "have continued to run below 2 percent."

The change is key as Fed officials consider 2 percent to be a healthy level of inflation and a key for continuing to push rates higher.

"The rise in inflation to basically 2 percent is what the Fed has been hoping for and forecasting and therefore they don't yet feel the need to alter the pace of their tightening path," said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

In economic data, mortgage applications dropped 2.5 percent as rates reached their highest levels in nearly five years. ADP and Moody's Analytics also found that private payrolls grew by 204,000 in April, more than the expected 200,000.

"Even though payrolls came in pretty much in line with expectations, it's encouraging to see this type of growth in the face of geopolitical tensions, trade negotiations, and pronounced market volatility. It suggests the economy is holding its own in one of the most important segments of our economy," said Mike Loewengart, vice president of investment strategy at E-Trade.

—CNBC's Jeff Cox contributed to this report.