Fed fears extended the slide in Treasuries Monday as the bond market set up for a more optimistic tone on the economy from the FOMC Tuesday. The 10-year note lost nearly a point, albeit on light volume, before some late short covering pared losses into the close.
Despite Fed reassurance that rates would be kept low for "as long as it takes," talk spread that the Fed will acknowledge the improving data and will spin a more encouraging tale on the economy.
Bonds began the day on soggy footing as Asian and European traders followed through on Friday's selling out of New York. Break of support at 4.293% triggered stops and the note slipped to 4.402% before stabilizing.
There was no data to provide any direction, although traders were cognizant of potentially strong retail sales figures due out Wednesday. Mixed trading in equities also also provided little distraction for bonds.
The belly of the curve underperformed and the 2s-5s and 2s-10s spreads steepened out modestly. Corporate issuance added to pressure as a couple of $1 billion dollar deals were readied. The short end remains relatively anchored by expectations the Fed will keep the funds rate target at 1% through the rest of the year. From MMS International