It’s Fed day, not Valentines Day but we are in love anyway with the trading action in bonds yesterday. Fed Chair Janet Yellen pulled-forward the timing of the long-awaited taper to an official “relatively soon.” That’s terrible for the bond market. This $4 Trillion bond holder (With a “T”) is showing their cards they are backing off. But what did bonds do? Absolutely nothing. That’s why we are head-over-heals in love with the action in bonds and the stock markets yesterday.
First, The FOMC Change In Language
After the June meeting, the Fed said, “The Committee currently expects to begin implementing a balance sheet normalization program this year.”
Yesterday’s FOMC statement changed the language from “this year” to “relatively soon.”
Fed officials had been publicly commenting about the potential for a Q3 taper but nothing was etched into an official FOMC statement. Yesterday that all changed and we now know the taper’s coming pretty “soon.”
Get ready!
Terrible For Bonds? Right? It is? It Should Have Been, Right? It Wasn’t? What’s Up?
The Fed has been in-there buying bonds for a decade taking interest rates to pre-historic lows. Officially pulling back on that buying to a zero over time should spook markets that interest rates are going to spike from these artificial-sweetener lows.
So after the 2PM statement, we had our noses to the screens. But look at what happened.
Bonds (represented by the ETF TLT) above went up after that 2 PM FOMC statement. That’s not so bad.
So What’s Up? Why Weren’t Bonds Killed?
Traders are telling you that this long-feared bond buying taper is not going to be as terrible as feared. There are plenty of bullish counter-drivers pushing bonds higher like low inflation and baby boomers who aren’t letting go of their safe assets. Also many are still not sold on the 2nd half economy so bonds are fine.
That’s a sign of “bad news” “bullish action” and it should cause you to fall in love all over again.
Ah Fed day…
Attaboy Trump
With all the love in the air we were relieved to hear that President Trump is considering renewing Janet Yellen as Fed Chair when her term expires in 2018.
With bullish reactions from bond and stock markets to taper news that appears to be a good move.
Nice move Trump!
Wrap It Up For Me Elazar: Make Me Some Money
We said we were bullish going into this Fed meeting. Nothing happened except an official pull-forward of the timing for this scary taper. But with markets not reacting you have an incredibly bullish reaction, no reaction. We think it’s another sign that this bull market is still very much on course.
