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Bonds Entrenched, Anticipating Rate Cut Tomorrow

It's all over but the easing, er, shouting. After last week, when the bond market posted significant gains on dovish comments from

Federal Reserve

officials, this morning's activity was predicated by the stock market's rise.

"The market is still in the mode where we're getting closer to the Fed announcement, and the sellers dry up a bit because we could get an aggressive move" from the Fed, said Anthony Crescenzi, chief bond market strategist at

Miller Tabak Hirsch


The 30-year Treasury bond was up 1/32 to trade at 105 24/32, as the yield eased to 5.12%. Most of the rest of the curve was flat.

Treasuries experienced a fair amount of volume this morning, as traders are largely trading bonds off the rise in the stock market. Barring massive advances in the stock market, most of the yield curve should trade slightly positive or flat throughout the day in anticipation of an assertive move from the Fed at tomorrow's

Federal Open Market Committee

meeting. The Dow was up 108 to 8136 as of 11:15 a.m. EDT.

Trading in the 30-year fed funds futures is expected to be volatile heading into tomorrow's meeting. The market is discounting a 40% chance of a 50-basis point rate cut. "The majority is still betting against it; but not a big majority," Crescenzi said.

Most economists believe the Fed will cut its short-term lending rate of 5.5% by 25 basis points or 50 basis points. Cautious remarks last week by both Fed Chairman

Alan Greenspan

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and New York Fed President

William McDonough

were considered out of character.

It is believed these remarks are setting the table for a 50-point cut; the theory here is that a 25-point cut wouldn't need much advance notice. "The Fed was uncharacteristically open about a rate move that it made it look like a done deal, given the severity of the problems globally," said Crescenzi.

European stocks were mostly higher overnight. The dollar was up against the mark after

Gerard Schroeder

was elected as German chancellor, ending

Helmut Kohl's

16-year reign.

Japanese officials tentatively agreed on a plan for banking reform, which would call for the nationalization or liquidation of a failed bank. In addition,

Japan Leasing

, an affiliate of the

Long Term Credit Bank

of Japan, filed for bankruptcy.