The stock market bounced to its highest close since last spring Wednesday after the Federal Reserve said it expected to keep interest rates near zero for almost three more years.
Bond yields dropped sharply, then climbed back later in the day when investors began looking more closely into the Fed's deliberations. The yield on the five-year Treasury note touched an all-time low.
The big moves in both markets came at 12:30 p.m. EST, when the Fed's monetary policy committee said it was unlikely to raise interest rates before late 2014. It had previously said it expected to keep rates low into the middle of 2013.
"Unless there is a substantial strengthening of the economy in the near term, it's a pretty good guess we will be keeping rates low for some time," Chairman Ben Bernanke told reporters.
The Fed cut rates to near zero in December 2008, during the financial crisis, and has held them there ever since. The announcement was a sign that the Fed expects the economy, which is improving, to need significant help for three more years.
The Dow Jones industrial average was down as much as 95 points in the morning and about 60 points before the Fed announcement. It shot to a gain of 103 points during the afternoon.
The Dow closed up 81.21 points, or 0.6 percent, at 12,756.96. That's the highest close since May 10. The Dow peaked for last year in April at 12,810. Before that, it had not been so high since May 2008.
In the bond market, the yield on the 10-year Treasury note was at 2.05 percent an hour before the announcement and quickly fell to 1.92, a significant move. It rose to 1.99 percent two hours later.
The bounce-back happened at about 2 p.m., when the Fed released details of how the committee voted. Six of its 17 members had favored an interest rate increase this year or next - well before late 2014 in either case.
The yield on the five-year Treasury note hit 0.76 percent, an all-time low.
The Fed's extension of low rates signaled that it expects inflation to stay low. Low inflation makes Treasurys more attractive by helping to maintain the value of bond owners' fixed returns. Rising prices would eat into those returns.
The announcement guaranteed that short-term loans will remain cheap, making it easier for investors to finance longer-term purchases, such as 10- and 30-year Treasurys, said John Canally, investment strategist and economist for LPL Financial.
Monetary decisions by the Fed can change the market's momentum in the short term but rarely have a longer-term impact, Canally warned.
The market changed directions after 22 of the past 24 Fed policy announcements, he said, yet the change evaporates quickly.