Treasuries erased most of their post-FOMC relief rally from Tuesday, faltering on supply, second thoughts about the benign growth/policy outlook and some hedge-lock selling. There was no official data, though the private MBA mortgage index slipped 0.5% due to a drop in the purchase component.
This left the market vulnerable to rumors and technicals. Indeed, various rumors swirled that a Washington-based advisor expected the Fed to tighten by March or at least do away with its "considerable period" reference at the December 9 FOMC. This helped put the market on the defensive, though it did little direct damage. DaimlerChrysler also announced a $1.5 billion 10-year issue that was reputed to have contributed to some hedge-lock selling on Treasury notes. There was also some scrambling and two-way activity on 2-year and 3-year notes ahead of the $26 billion 2-year note auction, which went off better than expected with a 2.12 bid/cover and 45.1% foreign demand.
Housing Agency Fannie Mae announced an accounting revision that briefly boosted bonds, but it later revised up income. Volume settled lower after heavy straddle sales on 10-year notes. The December bond closed down a point at 108-19, while the 2-year note and 30-year bond spread finished steady at +343 basis points.