NEW YORK (CNNfn) - Treasury bonds prices were little changed in listless trading Monday afternoon, a day ahead of the Federal Reserve's closely watched decision on interest rate direction. The dollar, meanwhile, rose against the yen after falling to seven-month lows vs. the Japanese currency.
Just before the 3:30 p.m., ET, the price of the benchmark 30-year Treasury bond rose 4/32 to 102. Its yield, which moves in the opposite direction from the price, stood at 5.98 percent, unchanged from Friday's close. Shorter dated Treasurys ground lower.
With no economic indicators, Monday's session was a quiet, low-volume one as traders stayed sidelined awaiting Tuesday's Federal Open Market Committee meeting.
That's when most observers expect the FOMC to raise the federal funds rate by a quarter of a percentage point to 5.25 percent in a move to preempt inflation.
"I think 25 basis points is pretty much factored in," said David Brady, portfolio manager at Stein Roe funds. A quarter percentage point equals 25 basis points.
Like others, Brady anticipates the Fed keeping its neutral bias, or inclination, toward a future rate hike, "given the absolute lack of inflationary data that we're seeing out there."
A decision is expected Tuesday afternoon.
Brady anticipates Tuesday's to be the last rate hike this year.
"We're going to get our GDP revision on Thursday," he said. "That will probably be downward slightly, and so there's really no reason to raise rates after this 25-basis-point increase."
The Fed last hiked rates by a quarter of a percentage point in June. A third rate hike after August would take back the three cuts made last fall to protect the economy from recession abroad.
"I think it is a quarter of a point move up, but a neutral stance by the Fed, opening up the way I think for a big rally for the rest of the year," predicted Joseph Battipaglia, strategist for Gruntal & Co.
In a sense, bond prices already reflect a benign outlook on inflation. Treasurys have rallied in recent days, sending the yield on the 30-year bond below 6 percent for the first time in August.
"The bond market still believes that the Fed is an inflation fighter, the bond market still believes that there really isn't inflation today, and they applaud the moves by the Fed to be ready for future," Battipaglia said,
Dollar steadies
In the currency markets, the dollar halted its slide against the yen. This new-found stability comes after a week in which the U.S. currency sank to a seven-month low in relation to the yen.
Just before 3:30 p.m., ET, the greenback rose to 111.49 yen, up 0.03 percent from Friday's close of 111.25.
The yen's recent strength has come on hopes that Japan is finally recovering from recession. This optimism, in turn, has brought a surge of investors into Japanese markets, pushing stocks higher.
Also aiding the yen, analysts say, is the belief that Japan's central bank may not intervene in the currency markets by selling yen. A strong yen, because it makes exports less attractive, could ultimately slow Japan's recovery from recession.
"Last week, there were comments from other Japanese officials which seem to imply that the Bank of Japan was standing back to some extent from the previous policy of intervening," said Tim Fox of Standard Chartered Bank. "And it wouldn't be completely against the wishes of the U.S. Treasury if the dollar were to weaken a little bit further. It would actually keep the pressure on Japan to reform."
But Monday, Japanese officials sought to temper the impression that they were unconcerned about their currency's gains.
The dollar also strengthened against the euro. Just before 3:30 p.m. ET, it cost $1.0497 to buy one euro compared with $1.0672 Friday, a 1.64 percent increase in the dollar's value.
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