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Federal Reserve Chairman Jerome Powell speaks following the Federal Open Market Committee meeting in Washington, Wednesday, March 21.Carolyn Kaster

Was Federal Reserve Chairman Jerome Powell's first interest-rate decision hawkish or dovish? Bond traders aren't dwelling on the answer.

Treasuries extended a post-Fed rally Thursday, sending yields tumbling the most since the Feb. 5 equities rout. The focus has already shifted to tension between the U.S. and China with President Donald Trump set to announce about $50-billion of tariffs against America's largest foreign creditor. The yield curve, which steepened after the central bank raised rates Wednesday, reversed course Thursday and is near the flattest since 2007.

For all the scrutiny on Mr. Powell's first Fed meeting, the takeaway is that it was ultimately just another risk that traders needed to get past. Granted, the most hawkish scenarios didn't materialize. Yet few would say that forecasting more aggressive tightening in 2019 and 2020 is outright dovish. As Goldman Sachs Group Inc. strategists said, "there was something for everyone," leaving investors open to placing new bets for the months ahead.

"When it comes right down to it, the changes in the FOMC statement were somewhat dovish, the forecasts for the fed funds rate, inflation, and employment were hawkish, and the reaction in the markets was confused," Marty Mitchell, a former head government-bond trader at Stifel Nicolaus & Co. and now an independent strategist, said in a note Thursday.

Heating Up

"The trade rhetoric from China is heating up," he said, and "the long-end of the U.S. curve has played catch-up."

The 10-year Treasury yield fell seven basis points to 2.81 per cent at about 10:50 a.m. in New York, tumbling from the 2.9346-per-cent level touched after the Fed's hike. The 30-year yield fell about eight basis points, flattening the curve from 5 to 30 years to around 42 basis points.

In a sign that more hawkish wagers were disappointed in the Fed outcome, the eurodollar strip bull flattened, consistent with a short-squeeze. Positioning had been short both because of bets on a faster pace of 2018 rate increases and in anticipation of a Libor blow-out.

Citigroup Inc. strategists also heard dovish tones for longer-term Treasuries. Mr. Powell said in his press conference that the natural rate is likely to stay low, and Citigroup said the central bank's higher inflation projections for 2019 and 2020 are "unachievable." The bank's analysts said their approach had been to buy into any post-Fed selloff, but they'll have to hold off for now.

Different Strokes

Others have a different take. Goldman Sachs, for its part, sees the Fed's upgrades to growth and inflation as a reason to expect the yield curve from 2 to 10 years to steepen. The bank held one of the most hawkish expectations for the Fed heading into Wednesday.

Of course, Treasuries are also taking their cues from global markets. Yields on 10-year U.K. debt and similar-maturity German bunds are both down. The Bank of England reiterated a gradual approach to raising rates Thursday, while euro-area data came in weaker than expected.

Traders are already on edge about the prospect of experiencing déjà-vu from last year, when U.S. yields peaked just before the March Fed meeting. The last two days did little to quash that sensation.

"Chairman Powell is doing nothing other than following the course, already laid down," said Mark Grant, chief global strategist at B. Riley FBR Inc. "With the exception of a few new words, the Fed's statement was just 'more of the same."'

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