Treasury prices are mixed but mostly lower for a fifth day in a row after a slate of economic data failed to alter the near-universal expectation that the
will hike interest rates next week.
With no more potentially market-moving indicators scheduled for release before the Fed meeting on Tuesday and Wednesday, bond traders' focus has shifted to the statement the monetary policymakers will presumably make when they announce any change in policy.
The benchmark 30-year Treasury bond was lately down 11/32 at 87 15/32, lifting its yield 3 basis points to 6.176%. That yield is slightly higher than the June 11 closing yield of 6.158%, which marked the long bond's worst close in more than a year and a half. Shorter-maturity notes are holding up slightly better than the bond.
The economic slate portrayed a bit less strength in the manufacturing sector than had been expected, but against a backdrop of a tight labor market. May
durable goods orders
rose 1.4% vs. an average expectation among economists surveyed by
for a 1.1% gain, but a 9.5% jump in volatile transportation orders skewed the overall reading. Excluding transportation, durables orders slipped 0.7%, vs. an average forecast that they'd be unchanged.
But any sluggishness in this report doesn't change the fact that the manufacturing sector is in moderate recovery, economists observe. "New orders ex-transportation registered solid gains in the first four months of the year, and the dip in May barely dented that trend,"
chief economist Michael Moran said in a research note.
Meantime, two job market indicators flexed their muscles again this morning. The weekly count of
initial jobless claim
continued to hover around the historically low 300,000 level at 302,000. And the May
keeps hanging out around the historically high 90 level. (The May reading is 89, up from 87 in April.)
Nothing particularly new there, so bond traders are ruminating on the possible outcomes of the Fed meeting. Not on the monetary policy outcome, which they pretty much all agree will be a 25-basis-point hike in the fed funds rate from 4.75% to 5%, but on what the Fed will say about it.
Fed watchers see three possible outcomes. The
Federal Open Market Committee
policymakers will make clear that they are retaining a bias in favor of a higher fed funds rate. Or they will say nothing about a bias, in which case people will assume the tightening bias remains in place, since the Fed has said its announcements are for the purpose of alerting the markets to changes. Or they will announce a shift back to a neutral bias.
Market participants seem to agree that one of the first two possibilities is likelier than the third, even though the Fed historically has tended to drop its bias after moving rates.
The risk in that move from the Fed's perspective,
Miller Tabak Hirsch
Treasury market strategist Tony Crescenzi said, is that the hike "could be cannibalized by market gains in stocks and bonds, if people think that once is going to be it."