Ok, well yields are diving, although it took Treasurys a few minutes longer to react to the Fed statement than it took the dollar, which dropped like a rock pretty much immediately.
We’ve now retraced the entirety of yesterday’s move higher in yields and notably, we’re now sitting pretty close to where we were on the 10Y just after the CPI miss:
As Bloomberg notes, this was underpinned by a $395k/DV01 block trade in 10Y futs after the Fed decision (5k TYU7 at 125-24, 2:02pm ET).
5Y yields are lower by something like 6bps and the 5s30s is back through 107. A block trade in 5Y futs crossed at 1:35 (5,344 FVU7 at 117-31+). “Changes to policy statement were minor, some of the Treasury gains may have been short-covering [as] Tuesday’s selloff was consistent with new shorts initiated after block sales posted across 5Y, 10Y and bond futures contracts; equivalent to around $4.5b in 10Y cash bonds,” Bloomberg goes on to write.
Between all of that and the sharply lower dollar, the read on the statement is clearly dovish.
“Fed’s July FOMC statement still points to normalizing interest rates and the balance sheet, but raised the recent deceleration in inflation from being a difficult-to-understand annoyance to a development that could delay both rate hikes and asset unwind,” Jefferies’ Ward McCarthy and Thomas Simons wrote in a note. “The descriptor ‘relatively’ gives policy makers some wiggle room in the event the labor market, inflation data, or possibly a debt ceiling crisis, gives the FOMC cold feet in September,” they added.
Also notable (and indicative of the dovish read), is EEM:
Simply put: “carry” on.