The Treasury market spent another session treading water yesterday as participants waited for the Federal Reserve to announce it was lowering interest rates, a move participants have been hoping for all week.

The 30-year bond closed 1/8 point lower, where it yielded 8.01%.

Since the Fed held policy steady yesterday, traders say the next opportunity for an easing won't come until tomorrow, after policy-makers have seen both today's August producer price report and tomorrow's consumer price index for August.

The Treasury market's price action yesterday repeated the pattern seen on Monday and Tuesday: prices moved higher at the start of the New York session as some traders bet the Fed would act during the morning, then gave back those gains when the Fed said nothing.

"Today's move lower was a little more extreme than the prior days," said Michael Strauss, an economist at UBS Securities. "There was some retail selling with it."

Some traders said the losses indicated participants are starting to doubt whether the Fed will ease.

Cracks are appearing in the market's complacency, a note trader said.

Until Tuesday, "people felt you really couldn't be wrong being long," he said.

But as of yesterday, the Fed still had not eased, and the inflation reports today and tomorrow could provide the central bank with a motive for holding policy stable, the trader said. "People are a little worried and want to lighten up a little before the numbers."

Some traders yesterday were arguing that it was in the Fed's best interests not to ease.

The head of a government trading desk said Fed policymakers' chief goal is to get long-term interest rates lower and he questioned how much impact a funds rate cut would have on the long end.

And since the long end is sensitive

Treasury Market Yields

Prev. Prev.

Wednesday Week Month

3-Month Bill 5.38 5.47 5.44

6-Month Bill 5.48 5.59 5.56

1-Year Bill 5.58 5.68 5.65

2-Year Note 6.20 6.27 6.33

3-Year Note 6.52 6.62 6.72

4-Year Note 6.69 6.78 6.86

5-Year Note 7.19 7.30 7.34

7-Year Note 7.53 7.63 7.64

10-Year Note 7.72 7.80 7.80

20-Year Bond 7.94 7.99 8.09

30-Year Bond 8.01 8.05 8.05

Source: Cantor, Fitzgerald/Telerate

to inflation expectations, bad August price reports would almost certainly bar a Fed move, the official said.

Other traders were concerned about the prospects for inflation.

Economists surveyed by The Bond Buyer expect today's August producer price report to show a 9.3% increase, with the core rate, excluding food and energy prices, also up 0.3%.

Tomorrow's August consumer price report may be more troubling. Many economists expect the core rate to rise 0.4% for the third month in a row.

On the retail level, "the best of the inflation news has already occured" during the spring, Mr. Strauss said. "You're not getting a further deceleration at those levels."

The December bond future contract closed 1/16 lower at 97 26/32.

In the cash market, the 30-year 8 1/8% bond was 5/32 lower, at 101 3/32- 101 7/32, to yield 8.01%.

The 7 7/8% 10-year note fell 3/32, to 100 28/32- 101, to yield 7.72%.

The three-year 6 7/8% note was unchanged, at 100 27/32- 100 29/32, to yield 6.52%.

Rates on Treasury bills were higher, with the three-month bill up one basis point at 5.25, the six-month bill up one basis point at 5.27%, and the year bill two basis points higher at 5.30%.

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