Bond markets began the day like most recent days: flat and uninspired. That wasn’t too hard to forgive considering we may well expect some indecision before something like an FOMC Announcement. The first shock of the day arrived at 10am when oil prices simply ‘decided‘ to spike (half an hour BEFORE the 10:30am inventory data). Bond yields followed, but the selling remained manageable at first.
Then the 5yr auction came out much weaker than expected, but again, bond markets weathered the storm with relative aplomb.
It wasn’t until the Fed announcement that things went pear-shaped. Long story short, the Fed took the opportunity that we’d been discussing and inserted verbiage that specifically warned about a December rate hike. Sure, it’s a bit of a conclusion to jump to when you read the actual words,
“in determining WHETHER IT WILL BE APPROPRIATE TO RAISE THE TARGET RANGE AT ITS NEXT MEETING,” was added in lieu of “in determining how long to maintain this target range.”
but if we consider the fact that this is the first time they’ve ever specifically addressed the ensuing meeting as a rate-hike candidate, AND when that occurred in light of fairly crappy economic data since the last meeting, it seems like a pretty clear message. The Fed wants to hike and they’re not going to tell us why (they’ll give us reasons, but their reasons make no sense. And THAT’S what’s scary about it).
Bond markets agreed–especially 2-5yr yields. MBS and 10yr Treasuries got plenty of aftershock with Fannie 3.0s down nearly a half point by the close.