NEW YORK (CNN/Money) -
Bond prices climbed across the board Wednesday on fears that Hurricane Rita may cause further damage to Gulf of Mexico oil production facilities, along with the lingering effect of the Federal Reserve's decision to raise the federal funds rate by a quarter percentage point Tuesday.
The dollar fell against the euro and yen.
The benchmark 10-year Treasury note gained 14/32 to 100-15/32 to yield 4.19 percent, down from 4.25 late Tuesday.
The 30-year note rose 26/32 to 113-20/32 to yield 4.47 percent, down from 4.52 late Tuesday.
Bond prices and yields move in opposite directions.
The two-year note climbed two ticks to yield 3.96 percent, and the five-year note climbed 7/32 to yield 4 percent.
Bond prices rose after the Fed announced Tuesday afternoon that it would raise the federal funds rate for the 11th straight time to 3.75 percent. There had been much debate over whether the central bank would detour from its campaign of "measured" interest rate hikes in the wake of Hurricane Katrina.
In the accompanying statement, the Federal Reserve said the storm would only harm near-term economic activity. What perplexed investors was the Fed's mixed message that energy prices may or may not add inflationary pressure to the economy.
Treasury investors fear inflation, since it erodes the value of a fixed-income investment.
Earlier Wednesday, investors appeared to believe that inflation is in check even though Hurricane Rita is chugging toward the Texas Gulf Coast, endangering refineries, pipelines and Gulf of Mexico rigs.
U.S. light crude prices reacted to Rita's upgrade to Category 4 status, rising $1.62 to $67.82 a barrel in electronic trading after briefly touching the $68 mark.
In currency trading, the dollar fell on Rita fears as the euro bought $1.2206, up from $1.2127 late Tuesday.
The dollar bought ¥111.37, down from ¥111.92 late Tuesday.
Click here to see exactly what the Federal Reserve had to say.
What factors will be weighing on the stock market Wednesday? Click here.