Bond prices are little changed this morning in spite of a fresh spike in gold prices, as traders await the outcome of tomorrow's
meeting. Traders are also counting down to Friday's release of the September
, the main event of the monthly economic data cycle.
With no economic reports due out today and the bond market's other bugbears -- oil and the dollar -- moving much less aggressively than gold, the benchmark 30-year Treasury bond was lately up 3/32 at 100, trimming its yield a basis point to 6.12%. Shorter-maturity note yields were unchanged so far.
Gold -- which ended last week up 13% at $304.30 per ounce after European central banks announced a plan to restrict sales -- was lately quoted at $313.00. Even though the move is supply-related, memories of the days when gold was a good leading indicator of inflation give some bond investors indigestion.
Tomorrow's meeting of the Fed's monetary policy committee, the
Federal Open Market Committee
, is widely expected to produce no change in the fed funds rate, the key short-term interest rate. But it's less certain whether the FOMC will keep its neutral "policy directive" or move to a tightening directive, which would indicate a higher likelihood of a rate hike at the next meeting, Nov. 16.
That uncertainty is keeping bond traders on edge. Analysts believe retention of the neutral bias could trigger a rally, while a move to a tightening bias will loose the bears.
"If they adopt a tightening bias it would send the market to fresh lows," said Ken Logan, managing analyst at
Thomson Global Markets
in Boston. "If they keep the neutral bias, I think we'll see a relief rally -- but not much of one ahead of the Friday's payroll data." With so many "high-risk events" on the near-term horizon, Logan predicts subdued activity in bonds through Thursday.
Marilyn Schaja, money-market economist at
Donaldson Lufkin & Jenrette
, sees strong potential for a bond-market rally in the event the FOMC has nothing to say tomorrow. Still, she expects the committee to announce that it's staying neutral but make a statement similar to the one it made June 30, when it pointed up the need to be "especially alert to the emergence, or potential emergence, of inflationary forces that could undermine economic growth."