There were no big surprises from the Federal Open Market Committee (FOMC) outcome, where the funds rate was left at 1.75% with the risks still tilted toward economic weakness. But two FOMC members did dissent in favor of easing. And contrary to expectations of a dull, pre-FOMC trade, financial markets extended recent trends into the 2:15 pm EDT announcement, which meant more new highs for Treasuries and fresh 4-year lows on the Dow.
Though no one expected any rate action from the Fed, Treasuries were higher from the open thanks to weaker stocks and rising speculation the Fed might hint at an intermeeting easing. The curve steepened out through +280 bps through the morning, only to narrow back to +275 bps by the close on the lack of such phraseology.
Nevertheless, Treasuries weren't too disappointed as the market interpreted the dissents by Gramlich and McTeer as heightening the risk for a rate cut ahead. The yield on the 2-year note fell just shy of 1.75% on news of the dissents, but drifted higher into the close.
Meanwhile, the bond closed up nearly a point after setting another multi-decade high at 112-04. Consumer confidence data gave mixed signals to bonds as the decline in the headline figure to 93.3 for September was offset by an upward revision to 94.5 in August.