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Two-year Treasuries, among the most sensitive to changes in monetary policy, advanced after the Federal Reserve left rates unchanged on Wednesday and did not signal when it would next tighten policy.

The yield on the two-year note dropped five basis points from a trading session high to 1.21 per cent, although it remained slightly above Tuesday’s close, writes Eric Platt.

Earlier in the day the note had risen to a high of 1.26 per cent after figures from payroll processor ADP showed a faster pace of jobs growth than the market had expected.

Yields fall as bond prices rise.

Benchmark Treasury yields have climbed since the election of US President Donald Trump on the expectation that pro-growth business policies and higher inflation could prompt a more hawkish central bank. Several economists said they expected the Fed to hold fire until concrete information surfaces about possible government stimulus.

“The [Fed] has taken a tiny step towards the next rate hike,” said Michael Gregory, an economist with BMO Capital Markets. “But, they are waiting until improving business and consumer sentiment, or the administration’s and Congress’ prospective pro-growth policies that are propelling optimism, bear some economic fruit before taking the next big step.”

Traders also pared bets that the Fed will increase rates three times this year, as policymakers had predicted at the end of 2016. Odds of at least three rate rises this year fell to 36 per cent from 42 per cent in the minutes after the Fed released its statement, according to calculations on federal funds futures.

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