After quite a bit of stock/bond correlation in the run up to the Fed announcement (and in the few hours that followed), the two sides of the market have gone their separate ways. This is most evident during the past two days during stock sell-offs.
For instance, starting at about 10:30am today, stocks began crashing with the SP losing more than 80 points from peak to trough. On most other days, this would have been worth more than the meager 1 basis point rally seen in 10yr Treasuries.
The takeaway is that bonds have engaged “holiday mode” and they reserve the right to disregard any typical rules until the the first few full days of January are in the books.
Bonds did manage to hold on to modest overnight gains today with 10yr yields down just over 2bps and Fannie 4.0 MBS up nearly an eighth of a point. But mortgage rates didn’t respond to the gains, partly due to late weakness yesterday that wasn’t priced-in and partly due to more conservative holiday pricing strategies among lenders.