Treasuries Improve, and Finish Higher

Treasuries rose on hopes the the FOMC might point to economic risks at its meeting Tuesday. Stocks moved into the red

Hopes built over the session Monday that the FOMC might at least introduce a weakened assessment of economic risks at Tuesday's meeting, though the vast majority of market participants do not expect a rate cut. The data was pretty evenly split, with services ISM bouncing back above 50 to 50.7 (from 47.9), while the Challenger Layoff report jumped 71% to 146,000.

Treasuries rallied, apparently giving a slight priority to the layoff report, which dovetailed with recent claims and payrolls weakness. Corporate supply was mopped up, with Monsanto pricing a $250 million 5-year deal and New York Life pricing a $1 billion 30-year deal.

Tuesday's revived $22 billion 3-year note auction appeared likely to be readily digested, unless the Fed springs a surprise on the market. Only a 20% minority expect the Fed to cut a quarter point, inferred from Fed fund futures, but one prominent investment bank was shooting for a bias towards weaker growth. Former Fed Governor Meyer in a CNBC said that the Fed would revert to a "balanced" assessment of risk.

The June bond closed 13/32 higher at 113-29, while the 2-year note and 30-year bond spread closed unchanged at +327 basis points. The dollar was hounded by bears to fresh four-year lows against the euro, and stocks sank.

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