Thursday was an interesting day in the markets.

It was a stereotypically "risk-on" day (stocks up, dollar down, etc.) until the Fed minutes came out.

The minutes revealed (apparently to the market's surprise) that several members of the FOMC were reluctant to keep Quantitative Easing far beyond the middle of the year.

It's debatable whether this counts as a "tightening" or not. After all, this doesn't change the Fed's 'Evans Rule' guidance, which indicates that easy money will be guaranteed at least until the economy hits a certain economic threshold, but any sign that the easing appetite is nearing its end is noteworthy, given the abnormality of the last few years.

So the risk-on-move reversed itself and became a very un-QE day. Stocks fell. The dollar shot up. Gold fell. Yields at the long end of the curve started to rise.

In light of this move, Citi's Steven Englander warns of a '1994'-like scenario.

Before the Minutes were released, there was little anticipation or discussion on payrolls. Now that the Minutes are out and have raised market fears that the fed will pull back from ease earlier than anticipated, investors are worried about a repeat of 1994, when a surprise Fed tightening after a long period of easy money (by standards of those days) devastated fixed income markets. Then 10yr Treasury yields rose 170bps over a two month period.    

In that light, you have to respect bond market skittishness, whenever 10yr Treasury yields go up by 21bps over three business days. We are not convinced this is what the Fed intended to convey. With fiscal tightening taking 1%+ off US GDP growth in 2013 and mortgage spreads versus Treasuries wider than the Fed hoped for, monetary conditions may not be as easy relative to underlying domestic demand as the Fed intended.    

However, you have to respect the market response. And if payrolls come anywhere near close to a 200k handle we will very likely see further a further equity and fixed income sell off.

In the chart you can see, the red line (10-year yields) exploded in 1994 after the blue line (the Fed Funds Rate) started to tick higher.

For what it's worth, in 1994 stocks gained, but it was the worst year among the heady boom years surrounding it.

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