Today's news was largely out yesterday: the Fed will probably reevaluate their exit strategy last spelled out in 2011--yes, the 2011 that was 3 years ago. Clearly, the state of the global economy was different in many ways then, so a reevaluation is scarcely a surprise.
The key issue suddenly seems to be that of reinvesting the principal payments from the Fed's asset portfolio back into the markets from which those payments came. The 2011 verbiage said those reinvestments would be the first thing to go after asset purchases were wound down. But yesterday, NY Fed President Dudley said that might not be such a good idea. Markets reacted to that yesterday afternoon, and were thus left with not much to react to when Today's Minutes said the Fed did indeed discuss this "stuff."
Perhaps if the Minutes held another bullet-pointed exit strategy section as they did in 2011, we would have seen more of a reaction. As it stands, we got nothing more than yesterday's hints, and another late-day speech from San Francisco Fed President Williams in which he said the same thing about reinvestments.
Long story short, the longer the Fed is reinvesting MBS proceeds back into MBS, the better it is for prices--especially for prices relative to Treasury benchmarks (because the Fed had previously said they intended to get back to a primarily Treasury portfolio). As such, it's no surprise to see MBS continuing to outperform with Fannie 3.5s breaking even by the end of the day whereas Treasuries were in the red across the board.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
| MBS || |
98-13 : -0-01
102-17 : +0-01
105-18 : +0-02
| Treasuries || |
0.3426 : +0.0116
2.5320 : +0.0230
3.4118 : +0.0368
| Pricing as of 5/21/14 4:07PMEST |
Today's Reprice Alerts and Updates
2:27PM : Knee-Jerk Weakness Looking Mostly Resolved; Risks Potentially Reversing
2:07PM : ALERT ISSUED: Bond Markets Steady to Slightly Weaker Following FOMC Minutes
9:18AM : Bond Markets Weaker Overnight on European Data and Auction
MBS Live Chat Highlights
Matthew Graham : "RTRS - U.S. FED POLICY MAKERS DISCUSSED MONETARY POLICY NORMALIZATION IN APRIL AS PART OF 'PRUDENT PLANNING' - FOMC MINUTES"
Matthew Graham : "RTRS - FOMC PARTICIPANTS FAVORED MORE TESTING OF FED POLICY TOOLS, PLAN FURTHER REVIEW AT UPCOMING MEETINGS - MINUTES"
Matthew Graham : "RTRS - LOW WAGE GROWTH ALSO CITED AS EVIDENCE OF LABOR MARKET SLACK - MINUTES"
Matthew Graham : "RTRS - A NUMBER OF PARTICIPANTS SKEPTICAL THAT SHORT-TERM JOBLESSNESS MORE IMPORTANT IN WAGE GROWTH THAN LONG-TERM UNEMPLOYMENT - MINUTES"
Matthew Graham : "RTRS - A FEW PARTICIPANTS FEEL FED SHOULD BE CLEARER ABOUT ITS APPROACH TO EVENTUAL RATE HIKE - MINUTES"
Matthew Graham : "RTRS - A NUMBER OF PARTICIPANTS SAID FED SHOULD SPECIFY PLANS FOR REINVESTING ITS ASSET HOLDINGS, SHRINKING BALANCE SHEET - MINUTES"
Matthew Graham : "nothing too shocking here. generally favorable, but no huge favorable surprises."
Scott Valins : "depends if the market was positioned for a favorable surprise"
Matthew Graham : "well... the fact that there wasn't an actual move on the reinvestment thing, and the fact that reinvestment hopes may have stoked markets yesterday means it might not be that great."