(Reuters) -- Government debt prices jumped on Wednesday after the Federal Reserve pledged to keep interest rates near zero at least until late 2014, a substantially longer time period than markets had expected.
Strong demand earlier at a five-year note auction along with lingering worries about Europe's debt crisis also spurred bids for safe-haven Treasuries.
The U.S. central bank, after its first policy meeting of 2012, repeated that it sees the U.S. economy facing significant downside risks as it extended its pledge on maintaining interest rates near zero. The Fed previously had said that it would keep rates ultra-low at least until mid-2013.
The delayed timing of a likely rate increase surprised some traders and stoked demand for longer-dated maturities.
Holding rates at these levels for three more years is much more aggressive that expected, said Richard Gilhooly, interest rate strategist at TD Securities in New York.
Earlier, investors snapped up $35 billion in five-year note supply, part of this week's $99 billion in coupon supply. The bidding for the five-year note sale was the strongest since May 2011, led by large money managers.
The market awaited further guidance from the Fed later Wednesday. It will release its interest rate and economic forecasts at about 2 p.m. EST, and Fed Chairman Ben Bernanke will begin a press conference at about 2:15 p.m.
The benchmark U.S. 10-year Treasury note last traded up 1-1/32 in price to yield 1.95 percent, down from 2.06 percent late on Tuesday.
The 30-year bond was last up 1-9/32 in price for a yield of 3.08 percent, down nearly 7 basis points on the day. It briefly traded up 2 points.