Digesting the $60 billion refunding, yields finally calmed down this week after the summer blowout sale. In a data-free session Friday the market mostly jostled to set up for the FOMC meeting next Tuesday, initially enjoying a relief bid after the last 10-year leg of the refunding passed unremarkably on Thursday.
Also friendly was an article from Washington Post Fedwatcher John Berry that concluded the Fed would keep rates low for some time and was still worried about disinflation. A slight flight bid may have also entered into the equation after agency spreads hit another air pocket on news that Freddie Mac was facing a class-action lawsuit from several state investment funds. There was also a flutter after the New York branch of another housing agency, FHLB, suffered an outlook downgrade by S&P Ratings to "negative."
Outright flows on bond futures were otherwise light and prices quickly ran out of momentum after a modest "real money" bid and some interest in buying volume on 10-year notes. Agency and swap spreads widened marginally after enjoying a deep WI roll-down this week.
The September bond closed down 6/32 at 107-21, over a point off session highs of 109-04. The 2-year note and 30-year bond spread steepened 3 basis points to +353 basis points as the cash 10-year yield backed up 10 basis points to 4.30%. Deferred eurodollar contracts squandered double-digit gains.