Treasuries Close Roughly Flat After Seeing Early Weakness

After coming under pressure early in the session, treasuries regained ground over the course of the trading day on Monday.

Bond prices climbed well off their early lows, ending the day roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 4.319 percent after reaching a nearly one-month intraday high of 4.359 percent.

The roughly flat close by treasuries came as traders continued to look ahead to the Federal Reserve’s highly anticipated monetary policy announcement on Wednesday.

The Fed is widely expected to leave interest rates unchanged, but traders will pay close attention to the accompanying statement and the central bank’s projections for clues about the outlook for rates.

While CME Group’s FedWatch Tool is currently indicating a 99.0 percent chance the Fed will leave rates unchanged this week, the outlook for the November meeting is somewhat more mixed.

The FedWatch Tool is indicating a 69.0 percent chance rates will remain unchanged in November but a 30.7 percent chance of another quarter point rate hike.

“How the Fed delivers the pause is crucial for November and December rate expectations, but whether it’s presented with a dovish or hawkish tilt is what matters most for financial markets,” said Quincy Krosby, Chief Global Strategist for LPL Financial. “The Fed, and Fed Chair Powell particularly, will emphasize that they remain data dependent.”

She added, “Financial markets are even more keenly data dependent, and the wrapping of the pause, with a dovish or hawkish angle, is key for the market’s direction.”

On the U.S. economic front, the National Association of Home Builders released a report showing homebuilder confidence in the U.S. has unexpectedly deteriorated in the month of September.

The report said the NAHB/Wells Fargo Housing Market Index slumped to 45 in September after tumbling to 50 in August. Economists had expected the index to come in unchanged.

The housing market index dropped below the key breakeven measure of 50 for the first time in five months, as persistently high mortgage rates above 7 percent continue to erode builder confidence.

Trading activity is likely to remain somewhat subdued on Tuesday, although a report on housing starts may attract some attention.

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