As broadly expected the minutes of September’s FOMC minutes were extremely boring and didn’t add much information. However, looking at the market’s reaction, and especially at the USD rally that followed the publication of the minutes, it seems that market participants were expecting a turn of events. Apparently, investors would have liked a dovish surprise and expressed their discontent by selling US treasuries and buying the buck.
The yield on the US 10-year Treasury note printed another multi-year high as it surged 4.7bps to 3.21%, the highest level since May 2011. On the short-end of the curve, the yield on the 2-year Treasury note climbed 2bps to 2.895%. In the FX market, the US dollar extended gains against most of its peers. In our opinion, yesterday market’s reaction is not justified. Therefore, we expect the USD to retrace its gains.
By Arnaud Masset