Bond Brief: Pre-Fed Dip

Updated from 11:51 a.m. EST

Treasuries slid Monday in quiet trading as the Federal Reserve kicked off a two-day policy meeting and a two-year note auction came off reasonably well.

In corporate bonds, Diageo(DEO Quote - Cramer on DEO - Stock Picks) will sell $1 billion in notes, up from an originally planned $750 million, in two parts. There will be $400 million in three-year floaters and $600 million in seven-year fixed-rate notes.

The benchmark 10-year note ended the day down 8/32 to yield 4.70%, while the 30-year bond fell 19/32 to yield 4.73%. Bond prices and yields move in opposite directions.

The two-year note was off 1/32 to yield 4.73%, and the five-year dipped 4/32 to yield 4.69%.

Futures markets are currently pricing in 100% odds that Ben Bernanke's first meeting will end Tuesday afternoon with the official fed funds target rising a quarter-point to 4.75%. The Fed's 15th consecutive hike would follow a mixed bag of economic data last week, including a strong number on existing-home sales but a weaker one on new homes.

But it's the accompanying policy statement that markets care about, and Fed watchers will scour the language for clues as to how many more times the central bank will raise rates.

"The Fed meets and hikes this week and too many words have been spilled speculating on the language change," writes David Ader, bond strategist at RBS Greenwich Capital, who believes the market is "ahead of itself in getting into pause mode. There are simply not enough signs of a slowdown, slack is less, and core inflation is closer to the top of the tolerance band."

This Federal Open Market Committee meeting will be the first that Ben Bernanke will preside over since succeeding Alan Greenspan in February.

And although the policy-setting Federal Open Market Committee now features a mostly new cast of characters, some believe it will look and sound much like the old Alan Greenspan-led Fed.

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