News & Analysis

The FOMC meeting, not surprisingly, was the main focus of Treasury market coming into the week

The FOMC meeting, not surprisingly, was the main focus of Treasury market coming into the week. Prices rallied and yields dropped after the Fed left rates unchanged and indicated they were still months away from considering moving the funds rate. Fed fund futures even ticked a little higher initially, indicating slightly lower expectations the Fed will move at the end of this year, but better demand was primarily seen at the long end of the curve. Thursday's announcement the Treasury would be auctioning off another $108B in new short term paper this coming week returned focus to the government's historical borrowing needs. Also rumors that the Fed was considering another unscheduled hike in the discount rate helped reversed some bullish sentiment. The 2-year yield is stubbornly holding within striking distance of 1% while better demand has kept a lid on the 10 and 30-year yields. By Friday the spread between the 2 and 10-year narrowed to less than 270 basis points for the first time since late last year.