How Did Markets React to the Fed’s September 2016 Minutes?

Equities gained marginally

US equity markets were marginally higher on October 12, the day of the release of the minutes for the September monetary policy meeting. The marginally positive rise was due to the fact the markets read it as being unchanged from their previous understanding that the Fed would move in December. Though the Fed says the November meeting is a live one, markets continue to think that the eventual rise will only take place in December.

The SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index (IVV), was up 0.1% at the close of trading on October 12, 2016. However, it fell 0.3% the next day. The SPDR Dow Jones Industrial Average ETF (DIA) also rose 0.1% on October 12 and receded 0.3% the next day. The Travelers Companies (TRV) and McDonald’s (MCD) helped the Dow Jones. On the other hand, Cisco Systems (CSCO) and Biogen (BIIB) pulled the NASDAQ marginally down for the day.

How Did Markets React to the Fed’s September 2016 Minutes?

Treasury yields barely moved

Treasury yields barely moved on October 12 in terms of the quantum of change in yield from the previous day. Some tenors up to the three-year period saw a decline in yields while longer-duration papers saw a marginal rise in yields. The benchmark ten-year Treasury note saw a rise of 2 basis points from the previous day.

Among funds that invest in bonds (BND), the iShares Barclays 20+ Year Treasury Bond Fund (TLT), which invests in longer-maturity Treasuries, was up 0.1% on October 12. The next day it rose 0.4%. The iShares Barclays TIPS Bond ETF (TIP), which invests in inflation-protected bonds issued by the US Treasury, was nearly flat on the day of the minutes’ release, but rise 0.2% the next day.

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), which invests in high-grade corporate bonds, rose 0.1% and 0.2%, respectively, for the two days while the iShares Core U.S. Aggregate Bond ETF (AGG) was nearly flat on October 12 but rose 0.1% the next day.

The minutes helped the dollar rise, which has scaled near seven-month highs in October. Hopes of a rate hike being around the corner helped the greenback up against its peers.

The issue of the Fed’s credibility was raised at the September meeting. Let’s look at that in the next article.