Treasuries Weaker in Light Trade

Barring a Greenspan surprise, some dealers think the buyers' strike will end Tuesday

Treasuries flatlined on Monday ahead of the FOMC, with the front-end of the curve underperforming the even cautious showing at the back-end. Expected noises emanated from Wall Street that we should expect a 75-basis-point gift from Greenspan & Co. Tuesday, which helped equities shoulder out of their malaise by the end of the session.

The 2s/30s spread dipped back below 100 basis points after popping out to 109 basis points last week. The June bond closed off 16/32 at 106-01, but some dealers were confident the buyers' strike would end Tuesday, barring an extreme move by the Fed.

The BoJ's virtual inflation targeting stance and return to ZIRP raised a few eyebrows stateside. This could have accounted for the reversal of a recent carry trade or two which might have explained of the weakness at the front-end of the curve, but activity was at pretty low ebb, so it was easy to overread today's price action. Japan Prime Minister Mori and President Bush discussed ways to enhance bilateral relations, but the more the unpopular Japanese leader talked up structural reform, the weaker the yen got -- back above Y123 from Y122 at the open.

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