The FOMC March minutes are out, and they revealed that the FOMC held a video conference two weeks prior to the scheduled meeting to discuss changes to its forward guidance coming out of the meeting. The aim was to drop outdated language regarding an unemployment threshold and what future Fed actions might be once it was inevitably crossed. The purpose was to confirm that, at the time, the market’s implied cost of borrowing money was largely in line with the Fed’s thinking. But the poor interpretation of Ms. Yellen’s reference to a possible six-month lag between the end of taper and the onset of monetary tightening reversed any of the groundwork laid after the statement.
As a result risk appetite is finding a flurry of hungry investors as stocks and bonds rally in unison. After the latest employment report we showed a chart of the December 2014/15 Eurodollar futures calendar spread to illustrate the response to Yellen and the subsequent flattening activity across the yield curve. Here it is again as fixed income buyers push down the yield curve. The yield at the 10-year eased to 2.69% after the minutes, while the idea that official rates are not going higher helped pull the rug from beneath the dollar as it slid to $1.3847 versus the euro. The S&P 500 (CME:SPM14) index jumped by 8-points within 10-minutes of the release and has posted a session gain so far of 15.5-points (+0.83%) as of the time of this writing.
December 2014/15 Eurodollar curve flattens again