Bond yields move around FOMC dates - Policy centric clues drive markets

If you are a bond trader, go to sleep except for the periods around FOMC meetings. The other days are often just noise. That is the conclusion from a recent research piece focused on the bond yield changes and the Fed albeit Fed information and learning may be more disperse over the last decade. See "The Secular Decline in Long-term Yields Around FOMC Meetings". 

Let's start with some graphics. The following graph shows the cumulative change during the three days prior and after a FOMC meeting. The yield declines are all centered around these days. The other days are noise. The authors looked at all scheduled and unscheduled FOMC meetings from 1980-2017. 

A similar pattern can be seen with 10-year TIPS yields and with 10-year breakeven inflation.  

A close relationship with dividend and equity yields can also be seen. 

The impact of FOMC meetings on cumulative excess returns has declined in recent years, but the long-term power of the Fed is clear. There are reasons for the decline and the authors find a clear break after 1994 when the Fed became more transparent with operating procedures. The stable post-GFC period coupled with forward guidance may have made FOMC dates less impactful, but that can change as expectations for shifts in policy increase. 

For better or worse, all investment managers have to be close Fed watchers regardless of the Fed's policy of transparency and forward guidance. It is not often the economic data but the perceived policy response to data that drives markets.