The yield on the benchmark 10-year Treasury note fell below 2% for the first time since November 2016 overnight after the Federal Reserve on Wednesday signaled rate cuts were likely on the way.
The yield on the 10-year Treasury note fell to a low of 1.974% before rebounding slightly to 2.01% as of 4:10 p.m. ET Thursday. The yield on the 2-year note also trimmed its decline to trade at 1.757%, just above its lowest level since November 2017 of 1.7% clinched earlier in the session. The 3-month bill yielded 2.131%, 11.6 basis points more than that of the 10-year yield.
Bond yields, which move inversely to price, sunk in overnight trading after the Fed struck a dovish tone in its June policy statement and Chair Jerome Powell said that the case for easier policy had improved.
"Overall, our policy discussion focused on the appropriate response to the uncertain environment," he said. "Many participants now see the case for somewhat more accommodative policy has strengthened," he said.
While the central bank maintained its target overnight lending rate, eight Fed members indicated that they'd be in favor of cutting rates once this year, while the same number voted in favor of the status quo and one wanted a rate hike.
The policymaking committee of the Fed also dropped "patient" from its statement and acknowledged that inflation is "running below" its 2% objective.
"I'd call yesterday's decision a dovish hold. They did not raise rates, but they gave every indication that they're willing" to if need be, said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management.
"I was happy with the decision yesterday, I don't think the Fed should be lowering rates at this time," Pollack added. "A lot of the concerns have to do with trade wars and uncertain outcomes. I was happy with their decision and I'd like to see them move slowly if and when they decide to adjust."
Traders are now pricing in a 100% chance of at least one Fed rate cut in July and a greater than 50% chance of two cuts by September, according to the CME Group's FedWatch tool.
While risk investors and those looking to buy a home may applaud the drop in the benchmark for corporate bond and mortgage rates, the marked drop in long-term rates may raise questions about the growth rate of the U.S. economy.
Weaker economic gauges like May's jobs report — which showed that the U.S. economy added just 75,000 positions — and a lackluster consumer pricing print have suggested to some economists that the American economy could be decelerating.
— Silvia Amaro contributed to this report.