For all the potentially complicated conclusions that can follow something as wordy and important as FOMC Minutes, today ended up being fairly cut and dry. In fact, it can be covered in a list.
1. Bond markets were weaker overnight, purely due to European economic data. The biggest culprit was German ZEW sentiment (not important to know what that is, just that it’s one of Germany’s most important pieces of economic data).
2. Bond markets did very little in the morning hours, ostensibly holding support ahead of the FOMC Minutes.
3. Minutes themselves were on the friendly side as the Fed expressed significant concern about inflation and also admittedly held off on including some of their thoughts in the actual statement for fear of the potential market reaction. Some say they did this so that markets wouldn’t expect more QE, but the fact remains that a totally healthy economy and marketplace wouldn’t require the Fed to pull punches.
4. Bonds rallied on the Fed minutes and then sold off following a big corporate bond announcement from Alibaba (USD denominated). Trading levels ended up right back where they were before FOMC.
Tomorrow is a new day, but I’m personally feeling a bit defensive after seeing the size of the reaction in European bond markets this morning, combined with my general belief that European markets are currently as important an indicator as anything for rates at home.