Treasuries put in a solid performance ahead of Wednesday's FOMC policy decision, on expectations the Fed will continue to extend an olive branch to the bond market. At 2:15 p.m. EDT, the Federal Open Market Committee will announce its decision on interest rates. Though a 25-basis-point cut is baked in the cake, whether the markets rise or fall Wednesday may depend on how traders interpret the Fed's statement, and the potential for further easing.
More press on the agency markets and a limp tone on Wall Street added to the bullish mix. Limited data fare was headlined by June consumer confidence, which eased slightly to 83.5 from 83.6, though that result was still about a point above median expectations.
That news was shrugged off as were weekly retail sales gains, in favor of the preoccupation with policy. Fed fund futures held firm, but odds were unaltered in terms of the 50-50 chance of a 25-basis-point cut, while the belly of the eurodollar strip gained nearly 10 points in anticipation of lax language from the Fed.
Rep. Baker unveiled a plan to put housing agency regulation under the Treasury's umbrella, but agency and swap spreads generally tightened in light trade. The September bond closed up 24/32 at 120-09, while the 2-year note and 30-year bond spread flattened 3 basis points to +322 basis points after the bond staged a late comeback, having initially steepening out.
Treasury Undersecretary Peter Fisher said price stability had been reached, but deflation was a low probability event. The dollar eked out a small gain.