Fed Minutes Should Please Bond Vigilantes

On Monday, we made a few headlines in the financial press with our out-of-consensus prediction that the FOMC would adopt a tightening bias at the June meeting of the Fed's policymaking committee. That would be followed by a 25-bps hike in the federal funds rate (FFR) at the July FOMC meeting. Today, the minutes of the April FOMC meeting showed that the vote to maintain an easing bias was close. There was considerable support for dropping it and adopting a tightening bias. Changing to a neutral stance wasn't seriously discussed.

Treasury bond yields fell this morning before the minutes were released in the afternoon. The 2-year yield edged down to 4.04%, still signaling that a 25bps cut in the FFR is likely soon (chart).