Assessing the risk to Treasuries from tapering

The muted reaction in the Treasury market following the release of the minutes of last month’s FOMC meeting may seem surprising given the revelation that most participants thought it could be appropriate to begin “tapering” this year. After all, this is sooner than had been envisaged by the medians of primary dealers and market participants surveyed by the NY Fed ahead of the prior FOMC meeting in June (the results of the surveys ahead of its July meeting have not been published yet). It can probably be explained by the fact that many Fed officials have talked about an earlier tapering since the strong July employment report, so expectations had probably already shifted, and by a risk-off mood in markets amid concerns about the COVID-19 delta variant. Yesterday the S&P 500 fell by ~1%. Meanwhile, the WTI crude oil price has slid to its lowest since May and the DXY dollar index is at a 9-month high.