The Federal Reserve signaled in its latest meeting minutes that it will continue to raise rates, but stocks initially rallied on a seeming silver lining in that the Fed does not appear overly worried about inflation.
But in the bond market, yields rose to the highs of the day, with the 10-year yield hitting a fresh four-year high, as traders there focused on the Fed's comment that it expects "further" policy firming, or further rate hikes.
But as stocks initially surged after the 2 p.m. ET release of the minutes, taking the Dow Jones industrial average 300 points higher, bonds sold off more. Rates move opposite price. The Dow then pulled a total reversal, erasing all of its gains and closing down 166 points at 24,797.
The bond market was fixated on the fact the Fed said the stronger economic growth raises the likelihood that "further gradual policy firming would be appropriate." That would suggest rate hikes are on the way, and possibly even more than the three the Fed has forecast. The central bank also said it added the word "further" to its post-meeting statement Jan. 31 to reflect the improved economy.
The Fed said almost all of its officials expected inflation to rise to their target 2 percent level. The markets were braced for a more hawkish sounding Fed, particularly on inflation.
Treasury yields had initially stalled but then rose with the 10-year at 2.95 percent, and the 30-year at its high of the day at 3.22 percent. The two-year, which is most sensitive to the Fed, slipped slightly to 2.25 percent.
Reference: CNBC