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Bonds Tick Higher And Watch the Clock

Volume is way down as the market awaits next week's FOMC meeting.

Treasuries are playing it close to the vest in an exceedingly quiet morning. The day's only economic release is the monthly federal budget statement at 2 p.m. EDT, so activity is winding down early here in preparation for Tuesday's

Federal Reserve




reported volume down 44% when compared to the average Friday in the past month. By 10 a.m., just $8.3 billion in securities had changed hands.

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"We're just gyrating around in the recent trading range," said Josh Stiles, senior bond strategist at

. "It's more like just daytraders involved today, and nobody's expecting a major move."

The only significant activity this morning is a slight flattening of the yield curve, as the 30-year bond has advanced significantly compared with other maturities. Lately the 30-year bond was up 11/32 to trade at 101 20/32, dropping the yield by 2 basis points to 6.01%. By contrast, the 2-year note was up 1/32 to yield 5.62%.

Though the bond market is fully expecting the Fed to raise the fed funds target rate by 25 basis points Tuesday to 5.25%, it's still going to be cautious prior to that, lest there be any surprises. But this morning's activity in the 30-year bond reflects the market's view that the Fed is ahead of the curve in terms of combating inflation. (The 30-year bond trades on inflation expectations.) However, this move is being exaggerated by thin volume.

The Fed executed a coupon pass to add liquidity to the banking system, buying Treasuries on the open market with maturities ranging from Nov. 2005 to May 2021, which lifted the market.