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Hopes built over the session Monday that the FOMC might at least introduce a weakened assessment of economic risks at Tuesday's meeting, though the vast majority of market participants do not expect a rate cut. The data was pretty evenly split, with services ISM bouncing back above 50 to 50.7 (from 47.9), while the Challenger Layoff report jumped 71% to 146,000.
Treasuries rallied, apparently giving a slight priority to the layoff report, which dovetailed with recent claims and payrolls weakness. Corporate supply was mopped up, with Monsanto pricing a $250 million 5-year deal and New York Life pricing a $1 billion 30-year deal.
Tuesday's revived $22 billion 3-year note auction appeared likely to be readily digested, unless the Fed springs a surprise on the market. Only a 20% minority expect the Fed to cut a quarter point, inferred from Fed fund futures, but one prominent investment bank was shooting for a bias towards weaker growth. Former Fed Governor Meyer in a CNBC said that the Fed would revert to a "balanced" assessment of risk.
The June bond closed 13/32 higher at 113-29, while the 2-year note and 30-year bond spread closed unchanged at +327 basis points. The dollar was hounded by bears to fresh four-year lows against the euro, and stocks sank.