There have been indications that Congress could settle the debt ceiling debate by July 4th and President Bush has sent firm letters to bi-partisan leadership. Ironic, then, that prices firmed when the root cause of the auction delay is the deteriorating fiscal position. The start of the two-year FOMC meeting nearly went unnoticed, though swap spreads pushed out and damp home sales and confidence data had little direct impact.
The September bond closed down 2/32 at 103-06, sandwiched between 102-19 lows and 103-14 highs. The two-year note and 30-year bond spread finished five basis points wider at +261.5 basis points. The dollar had another rotten day after recovering somewhat with stocks overnight, with the trade-weighted dollar index tumbling back below 108, nearly two-year lows.