NEW YORK, July 29 (Reuters) - Shorter-dated U.S. Treasury yields jumped on Wednesday on a surge in oil prices before erasing the gains and turning lower after the Federal Reserve held interest rates steady.
The U.S. central bank left the benchmark interest rate in the 3.50%-3.75% range, a decision that drew dissents from three of the 12 members of the policy-setting Federal Open Market Committee who "preferred" a quarter-percentage-point hike at this week's meeting.
The yield on the benchmark U.S. 10-year Treasury note US10YT=RR gained 3.5 basis points to 4.639% after climbing to 4.6549%.
"Each meeting we're now building more uncertainty around it than the last. It looks like September now (for a rate hike), maybe we're building to that crescendo, but we'll have to see how the data shakes out now over the interim," said JP Powers, chief investment officer at RWA Wealth Partners in Boston.
"Looking at the two-year (Treasury yield) before this, backing up on a day where we have a war escalating, it really shows you how concerned the market is that we were potentially going to see rates moving higher today."
The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 5 basis points to 4.227% after rising to 4.339%.
Markets had been pricing in a roughly one-in-three chance of a hike heading into the meeting, as recent economic data indicating a cooling of price pressures conflicted with the inflation concerns triggered by the volatility in crude prices due to the war in Iran.
Recent comments from several U.S. officials, including Fed Chairman Kevin Warsh, have signaled greater concern over price pressures than the labor market, which remains on stable footing.
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