Bond market to buy the news?

FOMC is set to cease bond buying

The worst kept secret in the financial world is that the Fed is going to taper the bond buying macro manipulation that kick started the inflation trade and the cyclical economy along with it.

That would theoretically be bond-negative and yield-positive. But is it possible that long-term Treasury bonds have already been sold down pre-announcement, with a decline in yields and a rise in bond prices ahead in a ‘buy the news’ event?

The daily charts of the yields are not looking too sweet at this time. If they break down, it’s buy the news, baby!

bond yields

And if bonds were to rally and yields were to fail that would cook the Continuum’s right side inverted shoulder potential and likely, certain inflation trades along with it. The top panel shows that would-be shoulder starting to wobble.

While I don’t necessarily think the stock market would mind a tough talking Fed during a seasonally strong period, I do want to be very aware of the macro backdrop. For example, Goldilocks could continue along happily through the holidays, among other possibilities. In such a case it would be ‘what kind of bull?’ rather than a simple and general question of ‘bullish or bearish?’

Meanwhile, other indicators are at odds with a would-be inflation cool down scenario and inflation expectations, while hammered down lately, cling to support (ref. last week’s article on inflation). So the situation is not resolved. But as it looks now, that right side shoulder on the monthly chart is wobbling and the daily chart above it is hanging there in a suspect manner.

Post-FOMC, let’s see how the machines react. They’re probably already programmed since we all (think we) know what the Fed is going to do. I guess they are just waiting for a push of the button.

Have I ever told you I hate FOMC week?

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