Treasury Prices End Little Changed

NEW YORK — Treasury prices were little changed Wednesday as investors adjusted to an emerging consensus that the Federal Reserve is unlikely to cut interest rates this month.

Minutes from the Fed's Sept. 18 meeting, released late in Tuesday's session, convinced the Treasury market it had gone too far in pricing in an October rate cut in recent weeks. The minutes showed that Fed officials were unusually uncertain about the economy and unwilling to state whether there is greater risk or rising inflation or slowing growth.

At the meeting, the Fed implemented an unusual half percentage point decrease in rates that left many investors hoping for another cut at the bank's Oct. 30-31 meeting.

But now, "the market is virtually eliminating any Fed move on Oct. 31, due to the Fed minutes," said Tom di Galoma, head of Treasury trading at Jefferies & Co.

In morning trade, there was fairly heavy selling that sent yields higher and closer to the 4.75 percent level of the federal funds rate. However, the selling abated due to weakness in the stock market, where investors also grappled with shifting views of the rates scenario.

The benchmark 10-year Treasury note closed unchanged at 100 25/32 with a yield of 4.65 percent, unchanged from Tuesday's close.

The 30-year long bond fell 1/32 to 102 5/32 with a 4.86 percent yield, matching its Tuesday close.

The 2-year note rose 1/32 to 99 23/32 with a 4.15 percent yield, near its Tuesday close.

The yield on the 3-month Treasury bill slipped to 3.69 percent from 4.01 percent Tuesday and the discount rate advanced to 3.95 percent from 3.91 percent.

Pricing in the futures market Wednesday reflected the view that bond investors now think the Fed most likely will leave rates unchanged this month. In addition to the meeting notes, recent strong labor market and manufacturing reports have cast doubt on the notion that the economy is so weak it needs the stimulation of rate cuts.

Brian Fabbri, chief economist for North America at BNP Paribas, said he believes a weakening economy will force the Fed to reduce rates substantially over the next nine to 12 months, but added that he doesn't expect the reductions to come in a steady stream.

"The Fed left the door open for future easings," he said. "But the fixed-income market believes that the Fed will not necessarily ease every meeting."

The sense that the economy in general and the housing sector in particular is softening was reinforced by the National Association of Realtors' announcement of its eighth straight downwardly revised forecast for existing home sales. The group now expects sales to be 10.8 percent lower than last year.

The Commerce Department's wholesale inventories report showed wholesalers will be in good shape if consumer demand declines. Inventories rose just 0.1 percent while sales increased by 0.4 in August, putting the inventory-to-sales ratio at a record low 1.11.

The stock market also is grappling with the implications of the latest Fed minutes. On Tuesday it rallied while focusing on the possibility that Fed policy makers might cut rates if they're concerned about the economy. However, that interpretation was in doubt Wednesday as stocks closed mixed.

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