Bond traders can book profits on bond purchases by selling, or on bond sales by buying. Today was characterized by the latter.
Logically, traders bet on higher rates on Wednesday afternoon and again on Thursday morning as Powell delivered a far less friendly message than the most recent Fed statement would suggest. Whereas the statement didn’t mention lower global growth risks, unfriendly potential changes to the Fed’s bond portfolio, and the fact that the cut of the Fed’s IOER rate had nothing to do with an actual rate cut, Powell DID.
As soon as he did, rates started moving higher at the quickest pace in more than 3 weeks. This morning’s jobs report wasn’t enough to keep the selling going–perhaps because tepid wage growth and a downtick in the hourly work-week didn’t support any inflation theories. And a lack of inflation is currently the strongest argument the Fed has for remaining accommodative with rates.
It also didn’t hurt today’s bond market gains that ISM Non-manufacturing came in much lower than expected. Nonetheless, 10yr yields only managed a token 1.5bp drop on the day to end at 2.53%. We’d really need to be trading well below 2.50% to have taken away a positive message on the week. After all, that’s right where we closed out last week.