The yield on the benchmark 10-year Treasury note sank 8 basis points to 2.519 percent, while the yield on the 5-year Treasury bond dove 10 basis points to 2.328 percent, its lowest level since February 2018. The short-term 3-month Treasury bill traded with a yield of 2.473 percent and the 2-year note rate dropped 7 basis points to 2.4 percent. Yields rise as bond prices fall.
The difference between the yield on the 10-year Treasury note and the yield on the 3-month Treasury bill was 5.5 basis points, the first time the yield curve flattened below 10 basis points since September 2007.
The Fed on Wednesday downgraded its economic forecast and said it plans to end its program of reducing the bonds it holds on its balance sheet in six months, a process closely followed by fixed-income traders around the globe.
"I guess we learned the definition of the word 'patience' and it means no rate hikes in 2019," said Jim Caron, Managing Director of Global Fixed Income at Morgan Stanley Investment Management. "I would argue that the only reason they put one hike in 2020 is that they didn't want to communicate a more dovish message to the market, like an end of the economic cycle."
The central bank said that in May it will begin tapering the amount of proceeds it allows to roll off its balance sheet each month. Fed committee members had estimated in December that two rate hikes would be appropriate in 2019 after four increases in 2018. That changed on Wednesday.
"It looks like the Fed isn't going to do anything in 2019. The dots are telling the market that they're not going to hike in 2019," said Tom di Galoma, head of Treasury trading at Seaport Global Holdings. "It looks like that's off the table and we're looking at some form of easing if the economy continues to falter."
The Fed said in its January meeting that it will be "patient" and data-dependent when deciding whether to raise rates going forward.
In a separate release earlier this year, Federal Open Market Committee members also mentioned the reduction to the central bank's balance sheet. The committee issued a separate three-paragraph statement noting that "it is appropriate at this time to provide additional information regarding its plans to implement monetary policy over the long run."
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin both plan to travel to Beijing next week for another round of negotiations with Chinese Vice Premier Liu He, the Wall Street Journal reported on Tuesday, citing unnamed Trump administration officials.
The world's two largest economies have imposed tariffs on billions of dollars' worth of one another's goods over the past year, battering financial markets and souring business and consumer sentiment.
Meanwhile, the U.S. central bank is widely expected to keep rates steady later in the session, with investors monitoring a decision on the Fed's rate projections for the next few years.
It comes after her plan to hold a third meaningful vote on her embattled Withdrawal Agreement was thrown into disarray by the speaker of Parliament.
— CNBC's Jeff Cox contributed reporting.