Last week, in the post below, we questioned the reasoning behind 2 disparate views of the Treasury market. Friday, after comments from various CB plutocrats in the mountains, both gentlemen were hung out to dry. The belly dropped out of the curve and the SP and Dow future tagged down pattern objectives.
The media focused on the small tweak in FF futures. As @mark_dow pointed out prior to the Fed yakking, the odds were about 33%. After Yellen (backed up by Fisher, such a misogynistic business) the betting line moved to about 36%. This activated the usual wave of "What do bond guys know that Fed doesn't ?" (excluding our 2 friends mentioned in prior post !) memes. Skipping past the Nov. election meeting, hike pricing jumps in Dec. Historically, a move in Dec would show "measured pace" to be 1 in Dec 2015 and 1 in Dec 2016 - oh how time flies when you're stuck in the upside down.
I've never been a fan of hedging away stub risk or taking clues from the 30 day average contract anyway. Fed Funds Futures are like a sign on a well traveled highway that you glance at while cruising by. The funding rate may go up in Sep, Nov or Dec in our opinion but the annual shifting of the window hardly seems deserving of all the angst.