Uninspired trading left Treasuries little changed Monday. Not even extended weakness in the Dow was able to break Treasuries out of their lethargy as typically quiet summer conditions were exacerbated by the uncertainty of the FOMC's policy decision on Wednesday.
With the debate over a 25-basis-point cut or a 50-basis-point cut being a toss up, traders were reluctant to commit to new positions, leaving profit taking and curve positioning plays the order of the day. Bonds opened on the soft side as the Middle East inspired flight-to-quality bid from Friday was unwound and as stocks posted modest gains. Yet, Fed funds futures retained a bid as a few more Fedwatchers jumped into the 50-basis-point easing camp (from 25 basis points).
A stronger than expected 2.9% jump in existing home sales had a brief negative impact, but technical supports held and Treasuries edged off their lowest levels. A turnaround in the Dow through the afternoon also helped bonds recover, though prices still finished in negative territory. One prominent shop was a featured seller of 10-year contracts on the day, while a couple of others were reportedly on both sides of the trade in the 5s.