The Federal Open Market Committee "just" met expectations Wednesday with 50-basis point cuts in both the Fed funds and the banks' discount rate and continuity of the easing bias Wednesday. This was a recipe the bond market liked, but the decision fell short of the 75-basis point cut that equities had been praying for -- a cut that was already partly priced into the market.
The March bond surged after U.S. Q4 GDP gained only 1.4% and the Chicago Purchasing Managers' Index sank deeply to 40.2 (November 82 lows), ignoring a 13.4% surge in December new-home sales, which stole some thunder from a large downward revision in November. Buy-stops slipped from Tuesday's 103-21 highs after a Treasury Dept. panel announced that in addition to extinguishing the one-year note, the majority recommended ending the life of the venerable bond. Though this measure is a way off, that prospect combined with the ongoing debt paydown elevated the scarcity premium of the bond and sparked some fading of curve steepeners.
There was an uneasy truce between real money fund longs around 104-00 on the March bond and leveraged accounts fading the gains into the FOMC decision, before it busted through that ceiling into the close. Only light month-end extension buying was reported.