The TIP ETF was down about a half percentage-point today, closing at $121.24 but still not far off  the all-time high of $123.44. The chart for the last five days is looking a bit sickly:

The TIP ETF rebounded nicely after dipping to near $120 in mid-March. So much for warnings of a ‘bond bubble.’ But in the last five trading days it has again dipped, under-performing the AGG EFT (aggregate bond index.)

Today the Federal Reserve pulled a shocker by accidentally releasing minutes of its latest policy meeting 19 hours before the expected time. The Wall Street Journal reports:

The Fed said Wednesday that a staff member in its congressional liaison office accidentally released minutes of a March 19-20 policy meeting Tuesday afternoon to many of his contacts, including Washington representatives at Goldman Sachs Group Inc., Barclays Capital, Wells Fargo & Co., Citigroup Inc. and UBS AG. …

Officials at the Fed didn’t notice the mistake until about 6:30 a.m. Wednesday, after which they scrambled to release the information to the wider public, which was done at 9 a.m. A Fed spokesman said: “Every indication is that [the release] was entirely accidental.”

So the slip-up overshadowed the actual news in the minutes, which is that the Federal Reserve seems to be considering a halt to its bond-buying stimulus program, possibly this year.  Here is another Wall Street Journal report:

The minutes of the March 19-20 meeting showed that “all but a few” Fed officials agreed the central bank would likely want to keep the program going “at least through midyear.” After that, officials had a wide range of views about how they might proceed. …

For now, Fed officials agreed, “additional purchases would be necessary to achieve a substantial improvement in the outlook for the labor market,” the minutes showed

I don’t think anyone seriously believed the Fed was considering an immediate end to the bond-buying, which has forced Treasury interest rates to extreme lows. So the news here was more that the stimulus could end earlier than the ‘sometime in 2014’ that was once planned, or at least hinted.

The stock market liked the news, with both the Dow and the S&P 500 closing today at all-time highs. Bonds took a hit, though, with the 10-year Treasury yield climbing to 1.84% from yesterday’s 1.78%.

An end to stimulus will mark a major change for nominal Treasurys and TIPS. Their extremely low yields have been supported by lavish Federal Reserve purchases, and when that ends – even if the Fed doesn’t begin selling its stockpile – interest rates will rise.

So I think the Fed’s message was read two very different ways: 1) The stock market saw easy money continuing through at least midyear, and 2) the Treasury market saw bond-buying possibly ending after midyear.

The result was that – finally – stocks and bonds diverted. It’s been amazing to see the stock market hitting all-time highs while at the same time the Treasury market was returning toward all-time low yields.

Something was wrong with that picture.