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Treasuries End Mostly Higher

Bond trading was not entirely written off as expected Monday, the day before the FOMC decision. Modest short-covering and curve flattening continued to be the path of least resistance and the preferred road to riches after the fact of the policy meeting. Prices steadily ground higher from their capitulative dive last week, with the June bond constructively closing up 17/32 at 99-4/32 compared to Friday lows of 97-06.

The curve flattened once more, narrowing 5bp to 211bp. While flows were generally on the light side, there was some talk of unwinding of a butterfly trade on the curve, buying the wings (5s & bonds) back against the body (10-year notes). There was ongoing corporate issuance to digest (Ace Ltd.) and agency Fannie Mae confirmed it plans to sell $5 billion in five-year notes and 10-year notes apiece on Friday, but this posed no problems. 3-month and 6-month bill auctions went surprisingly smoothly considering the underperformance of the short-end and proximity of the FOMC.

Stocks ran out gas and oil prices surged after OPEC kept their cuts place. The Financial Times interviewed PIMCO's Bill Gross, who mostly reiterated his February Outlook.

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