Treasuries Are Mixed on Quarter-Point Rate Cut

Short-end Treasuries swung lower after the Fed's move, giving up more than 11 basis points. The long end sunk, then rebounded

The FOMC's decision to cut the funds rate target by 25 basis points met the expectations of about half the market and disappointed the rest, as evidenced by the wild swings in treasury prices following the announcement. While the short-end was unambiguously hurt by the Fed's shift to a less aggressive easing path, with the new 2-year giving up more than 11 basis points as its yield surged to over 4.10%, the long end's path was not so direct. The 30-year bond surged nearly a point just after the FOMC's statement, fell back toward unchanged, then rebounded back near the highs before closing up about a half point.

The volatility in the long end was largely a function of curve trades, with flatteners the rage. Indeed, the curve was slammed by the Fed, ending up at about +150 basis points from +164 basisi points earlier in the day. Not surprising, the bond market was dead throughout the day, as traders awaited the Fed outcome. The Treasury's buyback announcement of a larger-than-expected $1.75 billion amount gave the long end a marginal lift early on. The 2-year note sale was uneventful, though buyers found themselves underwater after the Fed's move.

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