What played out over the past two days has been almost exclusively a bond market phenomenon. Yesterday’s FOMC Minute shake up had nothing to do with an accelerated time horizon for discontinuing easing efforts! It simply marked a departure from previously assumed certainty that characterized the collective “voice” of the FOMC governors and voters. Assumptions about the ideological unity of the Fed have simply been repriced and we’re still in the process of determining the lasting effects. Bottom line, the core issue is the Fed’s BOND MARKET purchases as they relate to the guaranteed cash flows assumed to be present on a set schedule. If we were dealing with the broader notion of QE ending sooner, we would have seen a grumpier stock market yesterday. It’s not that the acceleration of QE’s completion isn’t a factor at all, but not the core issue.
In another testament to that core issue, bond markets were already in the process of improving from ugly overnight levels by the time NFP rolled around, with the data itself merely serving as a volatility-inducing speedbump in the path of a slow grind to better levels. In other words, bond markets were still trying to calm down after yesterday’s news that time frame and continuation of their monthly checks from the metaphorical “rich uncle” may be harder to accurately predict than they previously were. Stock markets were up big, and by the end of the day, bond markets were in the green as well, without a hint of “risk-on vs risk-off” stock lever trading.