After the best day in a month and a half on Wednesday, the bond market returned to its recent habit of selling off and moving towards higher yields. It looked like losses were shaping up to be more modest early in the day, but things took a turn for the worse after the Fed’s Williams took a slightly hawkish turn. Williams was the one who objected to last week’s CPI report, saying the recent setbacks in inflation were not a surprise. Today’s comments were only slightly different, but markets focused on his call for rate hikes in case the data warrants it. In truth, this does not deviate from the dominant “data-dependent” communications regime, but with data-driven selling at 8:30 a.m. (Philadelphia Fed reaction), it appears to have been worth something to traders until present this morning.
Fed Funds Futures suggested a greater focus on Williams’ comments, which was to be expected given that Williams’ comments were more focused on near-term policy possibilities.