It was in like a bull and out like a bear for the Treasury market Monday as a number of factors contributed to a near one point slide in the September bond, which underperformed through the day. Treasuries started the session on relatively decent footing as equities extended last week declines. Ongoing safe-haven demand kept the short end well supported, as did a benign outlook on Wednesday's FOMC outcome, and expectations that Wednesday's two-year note sale would be postponed.
Meanwhile, the bond was under early pressure on steepening trades, real money selling, and weakness in the dollar which exacerbated inflation concerns (there was little sustained impact from overnight BoJ intervention). The two-year note and 30-year bond curve widened out another couple of basis points through +257 basis points. Weakness in the bond soon spilled down the curve, at first capping gains, and then finally sapping strength completely, especially as equities started to recover.
As equities managed to pop back into the green, Treasuries fell further behind. A central bank was rumored to be a large seller of bonds to help initiate the slide. There was no data on the day to distract traders from either equities or the dollar.