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Bond Markets Steady to Slightly Weaker Following FOMC Minutes
Posted to: Micro News
Wednesday, May 21, 2014 2:07 PM
There were no glaring surprises in the FOMC Minutes (which provide a more detailed account of the meeting that took place over 3 weeks ago), though there was mention of a discussion regarding how the Fed should reinvest its asset holdings.
With that in mind, it's important to note that markets were very interested in Dudley's comments yesterday regarding a change-up in the reinvestment game-plan (i.e. the Fed should not stop reinvesting before they raise rates). That's an MBS-positive factor that is missing from the Minutes. In other words, markets "bought the rumor" to some extent yesterday and are "selling the news" a bit now.
Fannie 3.5s have fallen in line with the lows of the morning, down 5 ticks at 102-12 and Treasuries are pushing into new highs. 10yr yields are up to 2.555. We're not far enough away from rate sheet print times to justify negative reprice risk, and there's a chance we bounce here, but there is a small amount of reprice risk any time we're in the midst of a post-Fed knee-jerk. Overall, this one is fairly mild so far.
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