The yield on the 2-year Treasury note fell below the 5% level after the Federal Reserve left rates unchanged for a second consecutive meeting and upgraded its assessment of the economy.
The 2-year Treasury yield tumbled 11 basis points to 4.96%, while the yield on the 10-year Treasury dropped about 11 basis points to 4.766%.
Yields and prices move in opposite directions. One basis point is equivalent to 0.01%.
Treasurys
The central bank kept interest rates unchanged, holding the key federal funds rate at the 5.25%-5.5% set in July. In a statement following the meeting, the Fed policy committee noted that gains in the labor market "have moderated since earlier in the year but remain stro ng," while "economic activity expanded at a strong pace in the third quarter."
During a press conference following the decision, Chairman Jerome Powell left the door open to another potential hike, indicating that the Fed wouldn't rule out a hike in December. He also shut down the belief that it may be difficult to hike rates following two consecutive pauses.
Powell recently reiterated the central bank's commitment to bringing inflation back down to the 2% target, saying that despite some progress, inflation remained too high. The latest consumer price index for September showed a 3.7% rise on an annual basis.
"The 'Higher for Longer' narrative by the Fed will continue to keep front end rates elevated through the end of the year, and the yield curve will continue to march towards finally un-inverting," said Rajeev Sharma, managing director of fixed income at Key Private Bank. "2-Year Treasury yields are down 10bps, a nod to the Fed acknowledging that tighter financial conditions are "likely to weigh on economic activity."
Earlier Wednesday, two reports on the labor market suggested jobs may be weakening slightly, while a manufacturing survey fell more than economists expected in October.
Elsewhere, the Treasury Department released details on upcoming bond sales as fears grow about the U.S. government's debt load. The plan appeared to be in-line with what traders were expecting, with the Treasury planning to auction $112 billion in debt next week.
— CNBC's Jeff Cox contributed to this report.