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2-year Treasury yield hits highest level since 2008 after Fed signals no change in rate hike plans

Federal Reserve Board Chairman Jerome Powell testifies during a hearing before the Senate Banking, Housing and Urban Affairs Committee July 17, 2018 on Capitol Hill in Washington, DC.
Alex Wong | Getty Images

The 2-year Treasury yield hit its highest level since June 2008 after the Federal Reserve showed no signs of changing course on its plans for further rate hikes despite recent turbulence in financial markets.

The Fed's policymaking arm, the Federal Open Market Committee, unanimously held the federal funds rate in a range of 2 percent to 2.25 percent. Markets had forecast the central bank would stay the course this meeting and still see the Fed approving a quarter-point hike in December.

"The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term," FOMC members said in statement, using the exact language they'd used prior.

Fed officials, responsible for keeping unemployment low and inflation tame, have gradually increased interest rates under the central bank's chairman, Jerome Powell, as they try to prevent the U.S. economy from overheating.

As of 2:26 p.m. ET, the yield on the benchmark 10-year Treasury note rose to around 3.239 percent, while the yield on the 30-year Treasury bond fell to around 3.435 percent. Bond yields move inversely to prices. The 2-year rate held at a decade high of 2.973 percent.

"It was a benign statement, boring," said Michael Schumacher, a rates strategist at Wells Fargo. "It kept in the comment about further rate increases and there was no change in the interest on excess reserves."

Schumacher added that while some fixed income strategists were curious if Fed members would make note of October's volatile markets, he wasn't surprised to see Powell disregard the turmoil.

"If you think back to the beginning of the year, the Fed wasn't concerned about a 10 percent drop in two weeks," so it's not necessarily surprising to see them refrain from comment this time, the rate strategist said.

The Fed, however, did note that household spending has "continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year."

U.S. Markets Overview: Treasurys chart

On Wednesday, yields fell on the back of the midterm elections, where the Democrats got back control of the House and the Republicans strengthened their presence in the Senate. At the time, bond traders said a split Congress could be a positive to prevent higher spending and debt issuance.

Meanwhile, the number of Americans filing for state unemployment benefit slipped in the week ended Nov. 3. The Labor Department said first-time claims for state unemployment benefits totaled 214,000 last week, matching expectations of economists polled by Reuters.

— CNBC's contributed reporting.