Market Volatility Rises Ahead of FOMC Decision

Stocks closed lower on Tuesday as investors awaited the Federal Reserve's policy decision and updated inflation projections. The Nasdaq and Russell underperformed, while the equal-weight S&P fell 0.4%. The SOXX and DRAM ETFs were marginally firmer following their sharp declines on Monday.

The Treasury yield curve steepened modestly, with front-end yields marginally lower while long-end yields edged higher. This came despite a rally in crude prices amid ongoing supply concerns. Libya's NOC said production and operations had been suspended at three oil fields after a valve was closed on the Al-Hamada-Zawiya pipeline.

The 20-year bond auction was very weak, with a 2bp tail, below-average bid-to-cover, sharp decline in indirect participation, and elevated dealer allocation pointing to a soft reception. The significant event risk surrounding Wednesday's FOMC decision may have kept some participants on the sidelines.