Why the April FOMC minutes were no surprise to bond investors



The Federal Reserve usually releases a more detailed account of its Federal Open Market Committee (FOMC) meetings a month or two after the initial meeting

When the Fed meets for its FOMC meeting, it usually puts out a press release that hits the highlights of the decision and gives a brief economic synopsis. Sometimes the release accompanies a press conference. Analysts will usually compare the current statement with the previous one and try to divine the Fed’s thinking by noting any changes in language. The FOMC minutes of the meeting are much more in-depth and are usually ten to twenty pages long, with graphs and a discussion of both sides of the argument. Instead of simply giving the argument for dissenters, it gives the analyst a feeling for the current discussions. Commercial REITs like Simon Property Group (SPG), Boston Properties (BXP), Kilroy (KRC), Vornado (VNO), and S.L. Green (SLG) are highly interest rate–sensitive, and therefore will parse the minutes to get a read on the economy and the Fed’s intentions.

10 year bond yield - LT

Bonds react to the minutes

Bonds (TLT) have been strong since the weak industrial data last week. The day began with the ten-year bond yielding 2.53%, and then yields spiked momentarily on the minutes before returning to previous levels. Bonds ended up flat on the day

The new buzzword for Fed Policy: “Normalization”

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With “tapering” now a common term in Fed-speak, a new word is needed to address when we eventually step away from ZIRP (or zero interest rate policy). That word is “normalization,” which has become the euphemism for “raising the Fed funds rate.” If you read the Fed minutes (and I’ll talk about this more in depth later in this series), we’re truly in uncharted waters, with the Fed contemplating increasing interest rates with a massive balance sheet. Remember that increasing interest rates hurts the value of fixed income assets, and the Fed isn’t immune.


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