After several whipsaw swings, the curve flattened sharply as the front-end underperformed on the Fed being virtually priced out of the picture next week. Fed funds futures plunged, discounting only 10% odds of a quarter point cut next Wednesday and even flagging risk of a half-point tightening by June, compared to 18% on Wednesday and 70% just after Jan. 11.
Still choked with supply, 2-year yields backed up to 3.15% from 3.039% awarded on the new notes yesterday, though curve trades kept the long-end fractionally in the green. The March bond closed up 1/32 at 102-08, finding support ahead of 101-24, but unable to break through 102-23 session highs. The two-year note and 30-year bond spread narrowed six basis points to +231 basis points.
Several corporate deals were prepped and priced amid a rush to bring them to the Street before next week's FOMC meeting. On the MERC a seller of 15,000 to 23,000 December 2002 Euro dollars was reported.