Whiel we could see some sort of technical bounce or a data-driven consolidation of recent trading patterns, bond markets have generally been on a tear toward higher rates so far in September. Over the past few days, speculation has run rampant that the Fed is set to drop the “considerable time” verbiage from the official policy statement regarding how long after QE ends before rate hikes would begin.
Even though the primary material for that line of thinking didn’t really show up until after bond markets already took forceful steps toward higher rates, market participants have nonetheless latched onto it as “the next big thing.” Of course it would be a big thing if it happens, and of course there’s every possibility that it could happen, but even without it and even before it, negative momentum was intact.
We first started talking about the “laundry list” of negative September factors a week ago. They include things like the fallout from the last European Central Bank Announcement, corporate debt hedging, and other boring stuff. The important part is that the pervasively negative momentum existed independent of Fed expectations. That means 2 things. First, the trend could remain negative even if the Fed doesn’t change verbiage. And second, bond markets could bounce back even before next Wednesday. That said, the collective belief in the Fed story is big enough as to prevent any major correction, so don’t hold out hope for much more if we catch a break in the next few days.