TREASURIES-Yields plunge after Fed hikes rates, sticks to outlook

* Fed hikes rates for second time in three months

* Fed sticks to outlook for two more rate hikes this year

* 2-, 3-year yields fall from multiyear highs to 8-day lows

* Long-, medium-dated yields also fall

(Updates prices, adds analyst comment)

By Sam Forgione

NEW YORK, March 15 (Reuters) - U.S. Treasury yields

plummeted on Wednesday after the Federal Reserve raised interest

rates for the second time in three months as expected, but did

not flag any plan to accelerate the pace of monetary tightening.

U.S. two- and three-year yields, which are most vulnerable

to Fed policy, fell from multiyear highs touched during morning

U.S. trading after the Fed said in its policy statement that

further rate increases would only be "gradual," with officials

sticking to their outlook for two more rate hikes this year and

three more in 2018.

The decision to lift the target overnight interest rate by

25 basis points to a range of 0.75 percent to 1.00 percent

marked one of the Fed's most convincing steps yet in the effort

to return monetary policy to a more normal footing.

The projections for just two more rate hikes in 2017 was

viewed as dovish, however, since JPMorgan (LSE: JPIU.L - news) economist Michael

Feroli and others speculated prior to the decision that an

increase to four hikes for the entirety of this year was a

possibility.

"Many in the market had positioned for a bit more of a

hawkish-sounding Fed in the statement and the (outlook) than was

actually delivered," said Mark Cabana, head of U.S. short rates

strategy at Bank of America Merrill Lynch in New York.

Fed Chair Janet Yellen said in a press conference following

the decision that risks to the global economy were more

balanced, but that she expected policy to remain accommodative

for some time.

U.S. two- and three-year yields sank to eight-day lows after

the statement of 1.303 percent and 1.590 percent, respectively.

Those yields had touched their highest since June 2009 and April

2010, respectively, before the statement.

U.S. long- and medium-dated yields also fell, with 30-year

and benchmark 10-year yields hitting

eight-day lows of 3.094 percent and 2.497 percent, respectively.

Seven- and five-year yields hit nine-day

lows of 2.296 percent and 2.006 percent, respectively.

"The market was concerned about potential acceleration and,

if anything, it was a deceleration in the confidence about the

future pace and that’s allowing the bond market to take yields

modestly lower right afterwards," said Matt Toms, Chief (Taiwan OTC: 3345.TWO - news)

Investment Officer of fixed income at Voya Investment Management

in Atlanta (BSE: ATLANTA.BO - news) .

Benchmark 10-year Treasuries were last up 26/32 in price to

yield 2.500 percent, from a yield of 2.595 percent late Tuesday.

Two-year notes were last up 5/32 in price to stand at

their session low yield of 1.303 percent, from a yield of 1.380

percent late Tuesday.

March 15 Wednesday 4:30PM New York / 2030 GMT

Price

US T BONDS JUN7 148-9/32 1-14/32

10YR TNotes JUN7 123-192/256 0-224/25

6

Price Current Net

Yield % Change

(bps)

Three-month bills 0.72 0.7313 -0.044

Six-month bills 0.8625 0.8783 -0.054

Two-year note 99-168/256 1.3034 -0.077

Three-year note 100-26/256 1.5901 -0.094

Five-year note 99-94/256 2.0097 -0.113

Seven-year note 98-216/256 2.3058 -0.108

10-year note 97-204/256 2.5021 -0.093

30-year bond 97-200/256 3.1145 -0.059

DOLLAR SWAP SPREADS

Last (bps) Net (LSE: 0LN0.L - news)

Change

(bps)

U.S. 2-year dollar swap 34.00 1.50

spread

U.S. 3-year dollar swap 25.75 0.75

spread

U.S. 5-year dollar swap 10.75 1.00

spread

U.S. 10-year dollar swap -3.25 0.00

spread

U.S. 30-year dollar swap -38.75 -0.50

spread

(Reporting by Sam Forgione; additional reporting by Dion

Rabouin; Editing by Lisa Shumaker and Diane Craft)