Curve flattening trades were quickly unwound as the market priced out some of its more aggressive rate hike fears. While the short end managed to retain its gains into the close, the unwinding of the limited the upside in the bond. Sellers of strength were also noted. The June contract closed down 11/32, with the cash bond finished only marginally higher. Fed funds futures prices also gained ground, particularly the May contract which had priced in nearly 80% risk for a tightening early in the day. It softened in the aftermath of the Fed's statement to about a 55% chance. Treasuries held near unchanged all morning, patiently awaiting the Fed.
The widening in the trade deficit to $28.5 billion had no impact, while additional corporate supply weighed marginally on the five-year notess through the morning.