U.S. Treasury yields declined in European morning trade on Thursday, reflecting markets' increased trust in the Federal Reserve's resolve to bring inflation back to target in a timely manner.

The Fed's well-anticipated quarter-point interest-rate hike, which brought the fed funds target rate range to 3.75%-4.00% in a unanimous vote on Wednesday, and the prospect of another rate hike this year, improved the Fed's credibility among investors.

"The unanimous Federal Open Market Committee vote says more than the 25-basis-point hike itself," said Natalia Lojevsky, managing director of CIFC Asset Management, in a note. "Twelve members agreeing to the Fed's first hike since 2023, with the updated dot plot signaling one more before year-end, confirms what the rise in real rates had already been saying: a higher neutral rate, not just a higher path to get there," she said.

The two-year Treasury yield, which tracks Fed moves more closely and rose 6.5 basis points Wednesday, led the fall, dropping by 1.8 basis points to 4.707%, while the 10-year yield declined 1.4 basis points to 4.989%, according to Tradeweb. Yield levels now trade below recent multiyear highs which pushed the 10-year Treasury yield to 5.041% on Tuesday, its highest since 2007.

Wednesday's Fed decision "marked important steps towards reestablishing policy credibility and making the Fed's reaction function more transparent," Marco Valli, head of macroeconomic analysis and chief economist at the Investment Institute of UniCredit, said in a note.

Fed Chairman Kevin Warsh faced increasing pressure to align policy action with his recent increasingly hawkish rhetoric, and Wednesday's decision "reduces the risk that investors question the Fed's inflation-fighting resolve," Dan Siluk, head of global short duration and liquidity at Janus Henderson, said in a note.

Eurozone government bond yields rose slightly in response to the Fed's rate increase and ahead of large-volume government bond auctions from Spain and France on Thursday. The 10-year Bund yield rose 1.3 basis points to 3.516%. Ten-year U.K. government bond yields rose 1.2 basis points to 5.307% as investors also awaited a decision by the Bank of England at 1100 GMT, where rates are expected to be left on hold.

Market uncertainty declined after the Fed meeting, even though the main factors--principally elevated oil prices and high debt levels--which drove the recent bond selloff and pushed the 10-year Treasury yield above 5% for the first time in almost three years earlier this week, remain.

"It's fair to assume that if the Fed had not acted...it would have caused meaningful strain across markets," said Larry Holzenthaler, senior portfolio manager at Catalyst Funds.

With one hike delivered and one more likely to come this year, investors are pondering the likely pace of further tightening.

"Higher oil prices stemming from continued conflict in the Middle East could keep inflation elevated, but monetary policy works with long and variable lags, and additional increases would put more pressure on consumers and businesses already facing elevated borrowing costs," said Steve Rick, chief economist at TruStage.

"The Fed should give this increase time to work before determining how much additional restraint is necessary," he said.

U.S. money markets priced in three more quarter-point rate increases over the next 12 months, LSEG data showed.