No, yesterday’s FOMC Minutes weren’t enough to change the fate of bond markets in and of themselves. They weren’t even enough to get bond markets back to last week’s levels. In the chart below, the current week begins right as 10yr yields (yellow line) break above the dotted yellow line near 2.05%. It’s actually rather disheartening that yesterday’s strength never even mad an attempt to challenge last week’s highs. In fact, it’s downright ominous from a technical perspective.
But before we freak out about that, let’s keep in mind that Treasuries are exemplifying the “freak out” trade because they have nothing better to do until Europe makes up it’s mind. If you’ve been reading this site for a while, now is the time to recall the discussions we’ve had about Treasuries’ likely behavior when and if Europe finally starts putting in its big bounce. I’ll say this: it sure feels a bit soon to be considering a big bounce in Europe, but given that US rates have been tugging at their German-made leash for more than year, I think it’s understandable that US rates are freaking out a bit.
Keep in mind, that at any given time, depending on the market conditions, it’s easier for bonds to err noticeably on one side of a trade and run the risk of needing to rush back to the other side than it is to start out on the other side and end up being wrong about it. In other words, being wrong about rates moving one way is generally easier than being wrong about rates moving the other way. At present, it’s easier for domestic bond markets to plan for the worst (big bounce in Europe) and hope for the best (European bonds stay grounded or improve).
Yesterday’s FOMC Minutes did actually serve a purpose in that regard. They helped the defensive “freak out” trade maintain better composure as we wait for the more important developments that will either validate or obviate the freak-out. Sadly, we probably won’t get any big news on that front today, but hopefully we can continue to wait for it with more aplomb.