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Treasuries Fall Ahead of Fed's Policy Meeting

Treasuries continued to build a concession into prices across the curve ahead of next week's FOMC meeting and quarterly refunding, before a late short-covering squeeze into the close. Residual jockeying ahead of these important events dictated the softer/flatter tone, particularly in the short-end and belly of the curve, despite Friday's sole data release. Existing home sales fell 0.8% in December, but hit a record 5.251 million units for 2001 as a whole.

Early downside leads came from the bunds and euro after heavy real money and Japanese stop-loss selling was rumored on both counts, dragging Treasuries lower in their slip-stream. Also causing indigestion in the belly were unsubstantiated rumors that the Treasury might bump up its five-year auction cycle to monthly from quarterly as it seeks to front-load borrowing. The Mar bond finally cracked its range low of 101-31 and extended declines to 101-13, before finishing just 4/32 in the red at 102-03.

Stocks put in an uninspiring performance and the floodgates of corporate issuance remained wide open. Fed funds futures eased to price 8% odds of an interest-rate cut on Wednesday.

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