Short Treasuries rallied on the second wave of equity selling that started shortly before lunch. Lower inflation expectations also sent short rates lower. The 3-yr has seen particular buying interest, while 10s barely kept up with 30s. Volatility in risk assets did not spark big volumes for Treasuries, however, as traders have to sit tight until the Fed meeting. World events – and how the Fed will adjust to them (if at all) – is the topic of the first article. The pre-FOMC task tackled here is to consider baseline expectations for the meeting and prepare for mild disappointment. If the Fed surprises and comes through, we outline where we think Treasuries would be overvalued in a rally. As near-term inflation expectations plummeted today, the 2s/10s TIPS curve stayed inverted – a recent change that has been lost amid all the other whirling headlines. Investors and economists should be thinking about TIPS inversion as more important than the nominal curve – despite only 10 years of history that didn’t see a recession. And, TIPS tend to lead the nominal curve when it comes to flattening. Will the same apply to inversion? It’s an important question, and this background could be among the more valuable analyses from December. Inflation is still not rising at the Fed-expected pace. November’s core growth was the fourth fastest in the last 12 months, but it still didn’t compensate for the slower months that preceded it. If core CPI doesn’t accelerate past .22% per month, then Q1 2019 year-over-year core figures will only be 1.7%. That will leave the bond market wondering what the Fed has been so concerned about. The White House said it will nominate Mark Calabria to be FHFA’s next executive director. To call Calabria a GSE critic might be too mild. He basically doesn’t see a reason for them to exist. The nomination could create GSE reform headlines in the first quarter, a topic that has been under the radar for more than 5 years. Although it is too early to be alarmed about potential policy changes for the housing market, there is a risk markets react prematurely as Administration critics try to lever housing as an election theme for 2020. The announcement prompts a brief update on four important GSE reform themes.