Coming into today, we had two key options as far as potential market movers were concerned: economic data and the Fed Minutes.  On the data front, ADP Employment led the charge, coming in at 263k vs a 187k forecast.  That didn't bode well for bond markets, but some of the damage was mitigated by the downward revision to last month's 298k blast (now revised at 245k).

With that, bond markets put in their highest 5 minutes of volume from 8:15-8:20am.  That might seem surprising considering expectations for the Fed Minutes, but that's the nature of ADP data.  It usually makes for a quick hit volume and volatility that quickly yields to whatever else the day has in store (the FOMC Minutes would later bring in significantly more volume overall).

Today, ADP yielded fairly quickly to the 10am ISM Non-Manufacturing data, which came in at the lowest levels in 6 months (55.2 vs 57.0 forecast). Bonds rallied modestly after that and held mostly flat ahead of the 2pm FOMC Minutes.

The Fed was widely expected to have discussed trimming its balance sheet.  This means a reduction in the amount of MBS (and Treasuries) that it buys by reinvesting the money earned from its existing portfolio of MBS/Treasuries.  

The minutes confirmed an extensive discussion of the balance sheet.  The Fed's reality turned out to be slightly tamer than bond traders' fears.  In fact, there were no negative surprises thanks to multiple Fed speakers commenting on balance sheet reduction in recent weeks/months.  In a nutshell, reinvestment tapering will be well-telegraphed and will proceed slowly.  Given that multiple comments have suggested "a Fed Funds Rate" over 1% as a condition for reinvestment tapering, it came as no surprise that the Fed said it could start in late 2017 (after all, the Fed Funds Rate window is currently 0.75-1.0%).

After a brief, initial move into weaker territory (algorithmic trading programs saw the instances of the word "reinvestment" spiked from 2 to 26 vs the previous meeting) bond markets found their footing and rallied into the close.  Much of the credit for that rally goes to equities markets which sold off at the quickest pace since March 21st (the day with the biggest drop related to the healthcare bill).