Bonds Move Higher in Light Volume

The 30-year bond is continuing the good run it's been on since Tuesday's Fed meeting.
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Treasuries are trading higher across the board in an extremely quiet morning. Earlier, the intermediate Treasuries -- five- and 10-year notes -- led the way, but have since retreated, leaving the two-year note as the day's best performer.

Of late, the 30-year bond was up 14/32 to 92 8/32. The yield fell 3 basis points to 5.80%.

The 30-year bond's been on a good run since Tuesday's

Fed

meeting, when the committee announced its adoption of a bias in favor of raising short-term lending rates. The long bond reacts positively to expectations of lower inflation, which is what a rate hike would presumably ensure. The gains initially came at the behest of the two-year note, which is more sensitive to monetary policy.

Lately, though, traders have unwound, or reversed, that move by purchasing two-year notes and selling 30-year bonds. The yield spread between the two has widened to 53 basis points today from 46 on Wednesday. One week ago, the spread was 61 basis points. The two-year note is up 4/32 today to yield 5.27%.

Next week's economic data are considered second-tier and because the Fed has made its intentions known, analysts believe the bond market is entering a quieter period. The activity is likely to be similar to today, marked by buyers shifting positions and playing one end of the yield curve off the other.

"The flattening biases are ending a little bit, and there's a slight upward bias after selling off," said Tony Crescenzi, chief bond market strategist at

Miller Tabak Hirsch

. "But I think the upside is very limited. It's unknown right now

whether the Fed will hike rates but a tightening threat by itself will be enough to keep a lid on prices."

That today's rally isn't much more than Friday positioning is evident in overall volume. Tracker

GovPX

reported volume down 33% when compared to the average second quarter Friday, with just $15.9 billion of securities changing hands.

Next week's releases include April

durable goods

and the

Chicago purchasing managers index

. Both important reports those, but neither provides real clues as to the current inflation outlook. Today's economic calendar is bare, save for the 2 p.m. EDT release of the

federal budget

outlays and receipts. Tax receipts will balloon April's figure.

Reuters

estimates are for a surplus of $118.8 billion, compared with a $22.4 deficit for the month of March.