The Fed raised interest rates last week. It was one of the most telegraphed rate hikes in recent memory and the market saw this coming 1 million miles away. Investors’ rate hike expectations reached 100% prior to the meeting.
That’s one reason why bond yields fell as much as 10 basis points the day of the FOMC meeting. As markets priced-in the near certainty of rising interest rates 2-year Treasury yields backed up 50 basis points between September and the day prior to the Fed’s meeting. Yields then backed off briefly before retracing their pre-meeting highs (back to 1.836% today).
Our quantitative Daily Trading Ranges are designed to incorporate the reflexive nature of macro markets. These risk ranges measure the market’s price, volume and volatility to produce dynamic risk ranges in which investors can buy at the low end of the range and sell at the top end. Hedgeye CEO Keith McCullough explained the market’s Fed Day reaction on The Macro Show recently:
“Let’s not be sloppy this morning. The Fed was hawkish and they raised rates so 2 year yields went up 50bs ahead of that. Then rates hit the top end of the risk range and backed off. That’s what things do when they hit the top end of the risk range.”
Watch the video above for more.