Treasuries weakened today as traders continued to price out a friendly Fed. This wasn’t necessarily destined to be the case after yesterday’s Fed Announcement. That, in and of itself, wasn’t too threatening to bonds. In fact, bot stocks and bonds rallied in the immediate wake of the release.
But once Powell got to talking, markets saw several of the talking points they were afraid of (i.e. foreign economic risks dying down, no case for a rate CUT, etc.). With that, bonds sold off yesterday afternoon and arguably picked the same game-plan back up today.
Selling kicked into higher gear when prospective Fed nominee Stephen Moore said he, too, saw no case for a big rate cut. Probably not what Trump wanted to hear… About 3 hours later, with no reason given, he withdrew his name from consideration.
It’s not entirely clear if the Moore headlines constitute causality or correlation. Either way, we can see lots of money moving out of the “friendly Fed trade” (i.e. buy stocks and bonds) yesterday afternoon and today. Each big movement had strong correlation between stock and bond selling–exactly what we expect to see when markets are pricing-OUT Fed accommodation.
It could also be the case that traders were paring positions ahead of tomorrow’s jobs report (less likely to explain the size and pace of the movement, but it could be contributing). Either way, the combination of the jobs data and the ISM data that follows 90 minutes later could be more than enough to break yields out of this week’s heretofore narrow closing range (2.50-2.54%).