What’s up? Not Treasury yields – or the dollar for that matter.

Government bonds are on track for their best day since last June after the Federal Reserve delivered – as expected – a 25 basis point rate rise but disappointed rate hawks by sticking to its forecast for two more rate rises in 2017.

Yield on the 10 year Treasury note, which moves inversely to price, fell by as much as 10.7bps to 2.49 per cent, its biggest intraday drop since November. It is currently trading 9.8bps lower, which would put it on track for its best day since June 2016.

The more policy sensitive 2-year yield was down by as much as 7.5bps at 1.3014 per cent. If it closes at this level, that would also make it its best day since last June.

“Although [the Fed] left the ‘Dots’ unchanged, the tone of the Committee’s forecast turned a bit more bearish,” said Steven Ricchiuto, chief US economist at Mizuho. “This helps explain why the long end did better on the announcement.”

Mr Ricchiuto reckons the move on the 10-year yield suggests that investors now think the Fed might have once again overestimated how many hikes it will deliver. He said:

“Without any real upside momentum in the core or a broadening out in the inflation base they hiked rates. Moreover, they hiked rates and went more fully towards three from two 2017 rate hikes even as the Atlanta Fed cut its Q1 GDP projection to 0.9%. They also upped their long-run mean a bit as well to just under 3%. The long-end is betting they overdue it.”

The bearish view was also reflected in the dollar, with the DXY index extending its drop to 0.9 per cent in late afternoon trade.

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