The day after the FOMC meets often has a Jekyl & Hyde tone, particularly a decision this contentious. Thursday was no exception, with prices at the front-end of the curve rolling out of bed on the wrong foot after initial jobless claims fell for the second straight time. Declines then spread like a virus to the rest of the curve, which flattened sharply on the Microsoft/equity rebound. This inspired some asset allocation out of 2s and 5s by European banks.
Month and quarter-end conditions, along with the approaching holiday weekend, also took a toll on long curve positions which were hacked back. The 2s/30s spread collapsed from +161 basis points late Wednesday to +144 basis points, while the September bond ran out of gas after breaching 102-10 Wednesday highs, then tumbled back below 101-00. 2-year yields backed briefly to 4.25% -- a 50-basis-point spread with Fed funds.
Minutes of the May-15 FOMC also exposed a dissenter (Hoenig) to the 50-basis-point cut back then and a broadening gravitation towards a shift back to a neutral policy bias. Microsoft dodged a break-up bullet as its case was remanded to a lower court, but abuse of its monopoly position was confirmed.