Ask me two months (or even a month ago) and I would have placed today above almost any other in terms of importance to the overall outlook. The reason has to do with the lower pane of today’s chart.
The biggest negative market mover of the summer for bonds was a series of comments from European Central Bank (ECB) President Mario Draghi that alluded to tapering its Asset Purchase Program (APP). German Bunds (Europe’s 10yr benchmark rate) spiked and led US Treasuries higher. Draghi and the ECB subsequently backpedaled. At the next policy meeting, Draghi disavowed any discussion of tapering and said it would likely come up the September meeting. Today is the conclusion of that meeting.
As the chart shows, ECB bond buying has been a big deal for US bond markets. You might even say the initial phase in 2014 (not of actual buying, but of the political process leading up to an official QE announcement in early 2015) saved US bond markets from a more dire fate following 2013’s taper tantrum. It was only natural for bonds to take Draghi seriously in late June.
But the ECB had to be realistic. They backpedaled fairly aggressively, saying that bond purchases could continue past the Dec 2017 deadline and even increase if necessary. Even as of this morning, with the official text of the statement already confirming that flexibility, bond markets still don’t have a clear sense of the likelihood of an extension past Dec 2017, or whether asset purchases would be tapered (as opposed to cold turkey). Draghi will likely field questions to that effect in the 8:30am press conference.
Whether or not it has even a fraction of the originally-expected market impact is another matter. Other factors have moved in to overshadow today’s ECB meeting (North Korea, hurricane season, Fed backpedaling, and political theater). Draghi would have to say something fairly shocking in order to get the market’s attention today. His press conference typically shifts to the important question and answer phase around 8:40 and can last another 30-60 minutes from there. In other words, we’ll know for sure by 9:10-9:40am ET.