Bonds Tick Higher And Watch the Clock

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

"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.