Treasuries finished off their best levels in a fairly tightly traded market. Some traders had been looking for a downward correction after all of Friday's terrorism hoaxes.
Data was a spartan offering of business inventories, which kicked up 0.4% in July as retailers sought to catch up to strong demand, particularly in the auto sector.
Multiple futures contracts set highs and yields continued to drop, though the front-end was symied by the proximity of the FOMC meeting and a slight decline in risk aversion after several Al-Qaeda operatives were captured. The Saudis also agreed to allow their bases to be used in the event of an U.N. sanctioned attack on Iraq.
Though equities were mixed all day, the long-end caught a early bid amid talk about Fannie Mae's August summary, which reported an end-month duration gap of -14 from -9, well wide of their +-6-month target gap. Raising duration could result in buying of underlying Treasuries, futures, calls, etc, though Fannie said they would "not put undue demands on the market."
The December bond closed up 11/32 at 112-24 after setting highs of 113-00, while the two-year note and 30-year bond spread narrowed four basis points to +268 basis points by session end.