The Fed reduced asset purchases by another $10 billion today and bond markets rallied handsomely. These two concepts have heretofore been diametrically opposed, but find paradoxical synergy through the grace of the emerging market sell-off.
In plain English now… Until now, the more the Fed tapers or is expected to taper, the worse it has been for bond markets. Then today, the Fed tapered by another $10 billion and bond markets rallied because tapering is theoretically hurting emerging markets and other risk assets, and those losses are theoretically benefiting bond markets.
Ergo, tapering helped bond markets today. Go figure. That said, it may be a fairer assessment to say that tapering was widely expected today and failed to stem the tide of an emerging-market/equities sell-off that was already in progress. Most of the day’s gains came well before the FOMC Announcement–itself seen as a long-shot to give those risk markets a boost if the Fed happened to hold off this time. As such the tapering status quo simply allowed the prevailing trends to continue. It may not be pretty, but it gets bond markets to their best levels in over 2 months.