Treasuries drifted down on light volume as investors wait for the verdict on the level of short-term interest rates from the
Federal Open Market Committee.
The two-year note, which moves most dramatically to changes in monetary policy, was recently unchanged at 100 19/32, yielding 3.926%. Yields and prices move in opposite directions. The 10-year benchmark note slipped 3/32 to 98 31/32, moving the yield up to 5.136%, while the 30-year bond lost 6/32 to 96 29/32, raising the yield to 5.588%.
"It's been very quiet, with some gyrations from movements in the equity market," said Ellen Michelson, vice president of Treasury trading at
. "But between now and Wednesday afternoon, it's going to be a contained market with trading occurring in a range."
The bond market is evenly split between those expecting the
Federal Reserve to make a quarter-point rate cut and those who predict a 50-basis-point reduction.
Alan Greenspan and his team of central bankers have slashed interest rates by 250 basis points since Jan. 3, amid increasing signs of a slowdown in the U.S. economy. Yet recent data have also shown pockets of strength, such as the ongoing momentum in consumer spending.
Existing home sales, a good proxy for near-term consumption of housing-related items and of consumer spending in general, rose 2.9% in May, and April sales were revised higher.
"This is probably the first time in a while that the market is of two minds about what the Fed is going to do," said Michelson, adding that the group's statement will be as important as the extent of the rate cut. "There are equally good arguments on both sides, and the Fed could easily justify whatever action they take. They could either use the glass-half-empty or glass-half-full argument."