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Bond Markets Coping With Loss Of Four Important Numbers
Posted to: Micro News
Wednesday, December 12, 2012 12:56 PM
R.I.P. "Late 2015..."
As far as extending asset purchases in longer maturity US Treasuries, the Fed did exactly as-expected and kept the monthly amount at $45 bln. But the shocker is that the FOMC included monetary policy THRESHOLDS in the actual Announcement itself, as opposed to simply letting Bernanke discuss their potential future inclusion during this afternoon's press conference.
This is a big deal because it REMOVES the "late 2015" verbiage from the Statement and replaces it with the moving target of 6.5 percent unemployment, as well as other conditions that the committee leaves to door open to consider in the future. Additionally, the Treasury buying is not longer scheduled for a set amount of time, but open-ended, based on economic conditions.
MBS have bounced back fairly well from the initial knee-jerk, after Treasuries found support at the same highs seen in late November (just over 1.69). That said, 10yr yields have just revisited those highs and may be breaking through. We're not likely to see a big, confirmed break into higher yields without the remaining FOMC events today also having a negative impact, but it should keep the pressure on MBS for now. Negative reprices are still a risk unless we bounce HARD back in the other direction, and SOON.
Fannie 3.0s are currently 4 ticks weaker on the day at 104-26 and 10yr yields are about 5bps higher at 1.6919.
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