3:39 pm - Treasuries Slip in Choppy Trade: Treasuries ended near session lows amid a choppy trade as the government shutdown had little impact on action. The complex opened in the red and held there throughout the session as trade was limited to a tight range. Some light selling surfaced following the release of the better than expected ISM Index (56.2 actual v. 55.0 expected), but overall the weakness was a footnote in the uneventful session. Yields across most of the curve climbed 3 bps with the 10-yr ticking up to 2.646% to close at its highest level in a week. Traders will continue to watch 2.600% over the coming days as key near-term support rests at the level. A steeper yield curve developed on the selling as the 2-10-yr spread widened to 231 bps. Elsewhere, precious metals were weak as gold fell $36 to $1291 and silver shed $0.45 to near $21.25. Wednesday's data includes the weekly MBA Mortgage Index (7) and ADP Employment Change (8:15). Fed speak kicks off for the week with Boston's Rosengren in South Burlington, VT to speak at a luncheon held by the New England Federal Credit Union and Lake Champlain Regional Chamber (12).

2:27 pm - Dollar Holds Little Changed: The Dollar Index holds little changed as a quiet session nears the close. Early selling provided a test of the 80.00 level, but that area was able to hold as trade rallied back to the flat line near 80.20.

• EURUSD is flat at 1.3520 as traders remain cautious ahead of tomorrow's European Central Bank rate decision. No change is expected from the current 0.50%, and, as always, participants will be paying close attention to the accompanying Mario Draghi press conference. The 1.3450/1.3550 that has been in place for much of the past two weeks will be watched closely. Eurozone data is limited to Spanish unemployment change. 
• GBPUSD is +10 pips at 1.6195 as trade lingers near a nine-month high. An early bid provided a test of the 1.6300 level, just short of the 2013 highs, but sellers have managed to gain control over the course of the session as Britain's Manufacturing PMI fell short of estimates. The 1.6000 area is setting up as decent near-term support. Britain's Construction PMI is due out tomorrow. 
• USDCHF is +15 pips at .9065 as trade has managed to reverse its early losses and recover yesterday's slide. The early weakness dropped the pair to a 19-month low below .9000, but buyers quickly stepped in to defend the level. 
• USDJPY is -20 pips at 98.05 as trade presses the lower end of the September range. Recent selling has dropped action below both the 50- and 100-day moving averages, causing some to shift their focus towards the 97.00 area. Today's weakness comes as the Japanese government appears to be on the verge of pushing through a sales tax hike to 8% (5% current) while also considering a stimulus package to offset some of the impact. 
• AUDUSD is +65 pips at .9390 as trade readies for its best close in over a week. Overnight, the Reserve Bank of Australia held its key rate steady at 2.50% while also noting further rate cuts may still occur. Australian data includes building approvals and the trade balance. Chinese banks remain closed for Golden Week. 
• USDCAD is +15 pips at 1.0330 as action looks to close at a fresh three-week high. Current levels have been on the radars of many as resistance in the area is helped by the 50- and 100-day moving averages.

12:45 pm - Afternoon Update: 2-yr unch @ 99 26/32...3-yr -01/32 @ 100 22/32...5-yr -03/32 @ 99 26/32...7-yr -06/32 @ 99 23/32...10-yr -08/32 @ 98 25/32...30-yr -20/32 @ 98 11/32...EURUSD +5 pips @ 1.3525...GBPUSD +10 pips @ 1.6195...USDJPY -15 pips @ 98.10...USDCHF +15 pips @ .9065...AUDUSD +70 pips @ .9395...USDCAD +15 pips @ 1.0330

11:48 am - Treasuries Stuck in Tight Range: Treasuries remain contained to a choppy range as neither bulls nor bears have been able to gain the upper hand. Action has been rather lackluster, producing a 1 bp range in the 10-yr yield for most of U.S. trade. The benchmark yield remains higher by close to 1.5 bps on the session at 2.632%. Participants continue to monitor the 2.600% support, which dates back to the summer. A steeper yield curve remains in play with the 2-10-yr spread checking up near 230 bps. Meanwhile, precious metals remain trapped on session lows with gold and silver at $1292 and $20.85, respectively.

11:23 am - Congress Fails to Reach Deal, Government Shuts Down: The Dollar Index tumbled to fresh eight month lows in early trade as the U.S. government went into shutdown mode for the first time in 17 years. The DXY slipped to 79.86 but it was able to find some support. The DXY has climbed back over the 80 level as U.S. equities are surprising followers with an early bounce in the face of the shutdown. 80.00 promises to be a key level moving forward as Congress continues to debate the CR and as the debt ceiling limit approaches. Economic data this week will be spotty in terms of releases as a number of reports will be delayed due to the shutdown. ISM manufacturing was able to top expectations this morning while the construction spending report was the first casualty of the shutdown as its release was delayed. 

• The euro was able to rally to the 1.3590 level but has given up most of its gains after European markets opened for trade. PMI data from the region was, in general, lower than expected, but the reports were able to hold the 50 levels which has offset some of the disappointment. One item of note is headlines continue to cross that suggest Mr. Berlusconi's influence over his party is waning. This is leading to expectations that the Letta government will be able to retain control and will not succumb to the Berlusconi threats. The market focus will turn to tomorrow's ECB meeting. It is expected to be a non-event but look for ECB president Draghi to be dovish as he tries to increase market confidence in the recovery. 
• And through all the noise the pound remains the bell of the ball as it climbs above 1.6200. Sterling was able to hit 1.6260 this morning, its best level in 2013, as it continues its run. Manufacturing PMI data declined from the prior month but still remains elevated and at the top of world figures. 
• The yen is bouncing around the 98.00 level this morning. Yen is caught in a tug of war as it sees some safe haven buying ahead of political uncertainty in the West. But it also is torn to the short side as investors continue to factor in the Abenomics impact. Overnight, the Abe government raised the consumption tax from 5% to 8%, which was widely expected. Mr. Abe also announced a JPY5 trln (approx $50 bln) stimulus that would help offset the impact of higher taxes. But there were few details released on the plan. 
• The Aussie dollar is attempting to push back to the .9400 level against the dollar. Overnight, the RBA left its interest rate unchanged at 2.50%, which was widely expected. But the central bank turned slightly more hawkish which is aiding the Aussie this morning. The announcement came as the Aussie was testing its 20 sma (0.9319) so it has also been able to use this technical level to climb higher

10:09 am - Treasuries Cling to Modest Losses as ISM Index Tops Estimates: Treasuries saw some initial selling in response to the stronger than anticipated ISM Index (56.2 actual v. 55.0 expected), but have quickly recovered most of those losses as Fitch stated a government shutdown alone will not trigger a downgrade of the U.S. 'AAA'/Negative rating. Today's weakness has yields at the long end up as much as 3 bps apiece while the belly of the curve outperforms. The 5-yr yield is higher by 1.5 bps at 1.403%, and continues to pressure 1.400% support. A slightly steeper curve remains in play as the 2-10-yr spread trades 230.5 bps. Elsewhere, precious metals are on their lows with gold down $33 at $1294 and silver off $0.85 near $20.85. Construction spending data was delayed due to the government shutdown.

08:24 am - European Yields: Yields are mixed across as money moves out of the core and into the periphery as traders take on more risk. Data out of the region was heavy, but the only regional print was the better than expected unemployment rate (12.0% actual v. 12.1% expected, 12.0% previous).

• German Bunds hold modest losses despite the disappointing German unemployment change (25K actual v. -5K expected). Today's selling has yields up as much as 3 bps with the 10-yr climbing to 1.805%. 
• UK Gilts cling to small losses as light selling takes hold following the UK's Manufacturing PMI miss (56.7 actual v. 57.5 expected, 57.1 previous). A 1 bp advance has the 10-yr yield near 2.545%. 
• Italian BTPs are firm as traders await tomorrow's parliamentary address by Prime Minister Enrico Letta concerning the recent political turmoil. It remains unclear if Mr. Letta will seek a confidence vote after former Prime Minister Silvio Berlusconi called on members of his PDL party to resign, or whether he has other plans. Italian Manufacturing PMI was released this morning, posting a disappointing 50.8 (51.2 expected, 51.3 previous). A 6 bp drop has the 10-yr near 4.370%. 
• Spanish Bonos are posting solid gains even after Spanish Manufacturing PMI (50.7 actual v. 51.6 expected, 51.1 previous) fell short of estimates. Heavy buying across the complex has yields off as much as 12 bps with the 10-yr sliding to 4.200%.

07:26 am - Dollar Tests 80.00: The Dollar Index is under pressure this morning as the government shutdown weighs. Overnight selling dropped the Index below the 80.00 level for the first time since February, but an early morning bid has been able to retake the level with current action checking up near 80.05.

• EURUSD is +25 pips at 1.3545 after early strength provided a test of the 1.3600 level. Strength in the single currency comes despite a batch of mostly disappointing data that saw Spanish (50.7 actual v. 51.6 expected, 51.1 previous) and Italian (50.8 actual v. 51.2 expected, 51.3 previous) Manufacturing PMI numbers and German unemployment change (25K actual v. -5K expected) fall short of estimates. The eurozone unemployment rate (12.0% actual v. 12.1% expected, 12.0% previous) was the lone number to top expectations. Any close above 1.3530 marks an eight-month high. 
• GBPUSD is +50 pips at 1.6535 as action ticks higher for a third session. The bid comes despite Britain's Manufacturing PMI miss (56.7 actual v. 57.5 expected, 57.1 previous), and has action nearing a test of the 2013 highs near 1.6300. Sterling is up close to 750 pips in September. 
• USDCHF is -10 pips at .9040 as trade breaks down to a fresh 19-month low. Overnight selling developed following the strong SVME PMI (55.3 actual v. 54.9 expected, 54.6 previous), causing trade to probe the .9000 level before buyers emerged. 
• USDJPY is -45 pips at 97.80 as trade tests yesterday's lows. Data out overnight showed Japan's Tankan Manufacturing (12 actual v. 7 expected, 4 previous) and Non-Manufacturing Indices in-line to better than expected while average cash earnings missed (-0.6% YoY actual v. -0.2% YoY expected), but the real story was Prime Minister Abe moving towards hiking the sales tax to 8% (currently 5%), beginning in April, while also considering monetary stimulus that may include cash handouts. The 97.00 area should provide some minor help along with the 200-day moving average (96.45). 
• AUDUSD is +95 pips at .9415 after the Reserve Bank of Australia held its key rate steady at a record low 2.50%. The hard currency jumped to session highs on the news, despite the RBA leaving open the possibility of more rate cuts, and has seen steady buying over the course of the session. A close above the .9500 level would mark the best since June. USDCNY was unchanged at 6.1217 as Chinese banks were closed for Golden Week. Overnight, China's Manufacturing PMI was released, posting a disappointing 51.1 (51.6 expected, 51.0 previous). 
• USDCAD is -15 pips at 1.0300 as trade continues to struggle at resistance in the area. Traders continue to watch the important 1.0225 area as trendline support aids the 200-day moving average.

06:55 am - Treasuries Slid as Government Shuts Down: Treasuries hold modest losses as the U.S. government shutdown is underway after Congress was unable to put together an eleventh hour deal to extend the continuing resolution. The selling has yields across the curve up close to 3 bps as action probes one-week highs. The benchmark 10-yr yield is testing the 2.650% level after action over the past couple of days has been unable to penetrate 2.600% support. Curve steepening persists with the 2-10-yr spread widening to 232 bps. Elsewhere, precious metals are firm with gold up $4 at $1331 and silver higher by $0.05 near $21.75. Today will see ISM Index (10), construction spending (delayed), and auto/truck sales (14).