10-year Treasury yield falls below 4% after the Fed signals a potential policy change

Treasury yields dropped Wednesday as the Federal Reserve approved a widely expected 75 basis point interest rate hike and signaled a possible slowdown in the pace of increases.

The yield on the 10-year Treasury traded 7 basis points lower to 3.97%. The policy-sensitive 2-year Treasury yield fell 9 basis points to 4.44%

Yields and prices have an inverted relationship, with one basis point equaling 0.01%.

The Fed on Wednesday approved a fourth consecutive three-quarter point interest rate increase, taking its short-term borrowing rate by 0.75 percentage point to a target range of 3.75%-4%, the highest level since January 2008.

Meanwhile, the new statement hinted at a possible policy change, saying the Fed "will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

"'Cumulative tightening' and 'lagged impact' suggest that this will be the last 75 bp hike and in December the move will most likely be 50 bp," Ian Lyngen, BMO's head of U.S. rates, said in a note. "We're somewhat surprised to see the 'soft pivot' in the statement itself and we expect that Powell will double down on this narrative at the press conference."