At 2:46 pm, just 30 minutes after the Fed announced that Fed Funds will remain at 0% interest until the sun collapses in on itself, the market was down 250-odd points. In the next 1 hour and 14 minutes, the market surged by 6% — recovering a big chunk of yesterdays losses closing up 429.9.
Now if that seems a little bit odd, it was nothing when compared to the bond market. The impact of the Fed deciding to hold rates down for the next two years basically shifted the entire yield curve two years to the left. 2-year Treasuries became T-bills, 5-year Treasuries became 3-year Treasuries, and so forth across the curve. Below is a graphical image of what happens when the Fed chief goes all “Rocky Horror Picture Show” and Time-Warps the yield curve:
Here are the closing yields across the curve:
Whether today’s Fed announcement restores the euphoria of the good-old QE days is yet to be seen. I tend to doubt it will. Rather, I think this announcement was the Fed’s way of saying it was getting out of the market until 2013, barring any extreme events.
It’s also interesting to note that, on average, the market rises about 3% the day immediately following a 6% or greater decline. Today was a bit more than that, but that’s how averages work.
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