Bond traders were in a good mood 24 hours ago. The longer-term supply was out of the way for the rest of the year, and traders felt they were well-prepared for the FOMC statement. They apparently over-estimated their preparedness.

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In reality, the statement was much as expected. The only minor surprise was the Fed’s reference to a big change in inflation expectations as evidenced by what has happened to rates recently, but traders seemed to think the fact the Fed recognizedthis was news.

Traders also objected to the Fed’s dot game showing three moves in 2017 instead of two. They started to put on yield curve flattening trades by selling the short-end and buying the long-end. Things quickly deteriorated from there. Sellers came outof the woodwork, and the sell-off snowballed.

By the end of the day the 2-year yield was 11 basis points higher than before the announcement, and the 30-year bond popped 9 basis points higher. But the real show was in the 5- to 10-year sector. The 5-year yield jumped 17 basis points and the 10-year14 basis points.

We’ve been seeing liquidation off and on for a few weeks, and there will most certainly be more to come unless the narrative changes dramatically. But nothing moves in a straight line, and we should have some good rallies from time to time as thisis now a short-term traders’ market.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.