Treasuries Close Roughly Flat For Second Straight Session

Treasuries showed a lack of direction over the course of the trading day on Monday before closing roughly flat for the second straight session.

Bond prices spent most of the session lingering near the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 3.086 percent.

The choppy trading on the day came as traders seemed reluctant to make significant moves ahead of the Federal Reserve’s monetary policy announcement on Wednesday.

Most economists expect the Fed to leave interest rates unchanged but make changes to its accompanying statement pointing to an openness to cutting rates in the near future.

CME Group’s FedWatch tool currently indicates just a 17.5 percent chance the Fed will cut rates this week but a 71.2 percent chance for a rate cut next month.

Recent indications the U.S.-China trade dispute is contributing to a slowdown in U.S. economic growth has led to speculation the Fed may cut rates, with Fed Chairman Jerome Powell pledging to act “as appropriate” to sustain the expansion.

Disappointing economic data seems to have reinforced optimism about a potential rate cut, as the New York Fed released a report showing a sharp downward turn in regional manufacturing activity in June.

The New York Fed said its general business conditions index plunged to a negative 8.6 in June from a positive 17.8 in May, with a negative reading indicating a contraction in manufacturing activity. Economists had expected the index to drop to a positive 10.0.

With the much record-setting monthly decrease, the general business conditions index recorded its first negative reading in over two years.

A separate report from the National Association of Home Builders showed an unexpected pullback in homebuilder confidence in the month of June.

The report said the NAHB/Wells Fargo Housing Market Index dropped to 64 in June after jumping to 66 in May. The decrease surprised economists, who had expected the index to inch up to 67.

“While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues,” said NAHB Chairman Greg Ugalde.

A report on new residential construction may attract some attention on Tuesday, although trading activity is likely to remain subdued as the Fed’s two-day meeting gets underway.

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