Rate Rise Tied After Fed Official References Feral Hogs

Cordier Sylvain | Hemis.fr | Getty Images

Whether it was a comment likening Wall Street to runaway feral pigs that did it, Federal Reserve officials managed to slightly rein in rising rates Monday.

Four officials have spoken since Friday, and it was a comment from Dallas Fed President Richard Fisher that got a lot of attention.

"Markets tend to test things," Fisher told the Financial Times. "We haven't forgotten what happened to the Bank of England [on Black Wednesday.] I don't think anyone can break the Fed … But I do believe that big money does organize itself somewhat like feral hogs. If they detect a weakness or a bad scent, they go after it."

"First of all, everybody had to stop and look up feral hogs. Apparently they're big in Texas," said one strategist.

But Fisher's comments also seemed to change the tone in the market. Fisher, a known hawk and nonvoting member, sounded more dovish to some traders, as he also stuck to his known views that too much quantitative easing can create market bubbles.

Since the Fed's meeting last week, yields have gone up sharply on the expectation the Fed will pare back its bond purchases before the end of the year. The 10-year yield early Monday hit 2.66 percent, well above its early May low of 1.61 percent. By late in the day, it had come back in to 2.55 percent.

The 10-year yield has made a rapid run of more than 100 basis points from 1.62 percent on May 2. A move above 2.5 percent was roughly 60 percent higher and is the quickest on a percentage basis since 1962, according to Dan Greenhaus, BTIG chief global strategist.

The Dow Jones industrial average, during the worst of the selling Monday, was down as much as 250 points, but retraced its losses in the afternoon after Fisher spoke. It closed down 139 points at 14,659.

(Read More: Stop 'Retarding' Economies With Loose Policy: BIS)

The Fed's decision to announce the conditions on how it will pare back its $85 billion a month in bond purchases coincided with moves by the People's Bank of China to rein in speculative lending. That, and worries about China's economy, have also hit markets, creating anxiety that the Fed may be pulling back at the wrong time.

"Mr. Fisher used 'feral hogs' as a reference. We all know bulls and bears make money and hogs get slaughtered," said Ben Willis, managing director with Albert Fried, on CNBC's "Closing Bell." "Overall, I still think the market has some work to do on the downside."

The Dow had moved in a wide range and was down just double digits for part of the afternoon.

But the reversal in rates had some bond market analysts looking for a near-term top in yield.

"It was the culmination of the four Fed speakers since Friday. We effectively had two issue their own FMC statements—Bullard and Kocherlakota," said CRT Capital senior Treasury strategist Ian Lyngen.

"I understand that they're uncomfortable with the price action, and similarly Dudley came out with his views and Fisher with the wild boar reference. If anyone could ever be concerned there was a coordinated Fed communications response to price action this was it."

New York Fed President William Dudley also spoke Monday, as did Minneapolis Fed President Narayana Kocherlakota. Kocherlakota, a nonvoting member said he was not worried about the market's short-term reaction to the Fed, but would be concerned if it continued. He also laid his own view on the Fed QE program, saying it should buy assets until the unemployment rate has fallen below 7 percent.

Fisher also said it made sense to "socialize the idea that quantitative easing is not a one-way street," and that ending it would be done cautiously. "I don't want to go from Wild Turkey to cold turkey overnight," he said.

On Friday, St. Louis Fed President James Bullard released a statement on why he dissented at the Fed's meeting last week. Bullard said he was concerned the move to taper purchases is premature and he is worried there needs to be more tangible signs of economic improvement.

Bullard also thought the Fed should have signaled more willingness to defend its 2 percent inflation target, according to the St. Louis Fed.

(Read More: Bernanke Should Keep Buying Bonds: Fed Official)

Rising interest rates have been stinging stocks, and some traders have been chatting about at what point stocks could weaken enough to make the Treasury market look like a safe haven once more.

Bank of America Merrill Lynch global head technical strategist MacNeil Curry points out that the breakdown in the S&P 500, through key support at 1,597/1,600 now makes the 1,540/1,536 area an important area of support before the 200-day moving average, which is way down at 1,506. The S&P 500 fell 19 to 1,573 Monday.

"This weakness should increase the potential for a 'flight to safety' bid in U.S. Treasuries, likely resulting in pause or period of consolidation from the recent selloff," he wrote. "However, we must stress that yield pullbacks should be seen as temporary and corrective of the larger bear trend."

He said the 10-year yield could head back to 2.420/2.219 percent, before moving back up to bearish levels of 2.857/2.951 percent.

—By CNBC's Patti Domm.