Yesterday's CPI data gave bond markets cold feet heading into today's FOMC Announcement. As we discussed, the selling pressure yesterday wasn't the traditional "higher inflation = higher bond yields" sort of equation, but rather a last minute adjustment in expectations for the FOMC to be a bit more stern with respect to inflation. After all, if CPI rose so much, and the Fed had previously held a pretty hard line on persistently low inflation, maybe we'd hear something different today.
Markets subsequently earned back everything they'd given up yesterday, leaving us painfully close to Monday's latest levels.
This is made more interesting by the fact that there was indeed an apparent hawkish shift in the rate-hike outlook based on the economic projections:
Primarily, take note of more green dots at higher rates vs red dots in the 2015 column. This simply means that three Fed members see the Fed Funds rate slightly higher by the end of 2015 than they (or the members they replaced) saw them in March, while only 1 Fed member moved lower in rate (again, this could be one of the new inductees).
Yellen would go on to characterize this shift as factor of the changing composition of the committee based on those new inductees. That helped bond markets read even less into it, but they'd already mostly gotten over it due to the balancing out of rate expectations over the longer run (notice more green dots underneath red dots in the "longer run" column).
All things considered, this ended up being yet another miraculously uneventful FOMC day. Perhaps the true miracle will be when we see something different.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
| MBS || |
98-05 : +0-20
102-08 : +0-18
105-16 : +0-15
| Treasuries || |
0.4516 : -0.0324
2.5898 : -0.0632
3.4042 : -0.0418
| Pricing as of 6/18/14 5:23PMEST |
Today's Reprice Alerts and Updates
3:54PM : Markets Soothed by Fed's Status Quo; Positive Reprices
2:16PM : Knee Jerks Starting to Even Out; MBS in Positive Territory
2:08PM : ALERT ISSUED: Bond Markets Reverse Course, Losing Ground After FOMC
1:50PM : Bond Markets Inching to Best Levels Ahead of Fed
9:26AM : Bond Markets Hold Technical Support Overnight, Slightly Stronger This Morning
MBS Live Chat Highlights
Matthew Graham : "we'll probably get another sharp-ish bounce back up in MBS as long as Treasuries are hanging out near 2.64"
Matthew Graham : "yeah, this isn't a freak-out situation at the moment. Some reprice risk, so act accordingly if you need to, but not catastrophic"
Brent Borcherding : "We're down 4 on MBS and the 10 yr is in the green, still below supprot."
Sung Kim : "we need yellen to talk us off the ledge"
Mike Owens : "super ball bounce"
Chip Harris : "wow, a little bit of volatility..."
Joel Marks : "the 5 minute reversal seems common on Fed and NFP days."
Andy Pada, Jr. : "almost 25 bps worse on live pricing"
Matthew Graham : "as expected, all changes in 1st paragraph"
Matthew Graham : "RTRS- FED REPEATS MAY KEEP FUNDS RATE BELOW NORMAL LEVELS FOR SOME TIME EVEN ONCE EMPLOYMENT, INFLATION NEAR LEVELS IN LINE WITH MANDATE"
Matthew Graham : "RTRS- FED REPEATS HIGHLY ACCOMMODATIVE POLICY TO BE APPROPRIATE FOR CONSIDERABLE TIME AFTER ASSET PURCHASE PROGRAM ENDS"
Matthew Graham : "RTRS - MEDIAN VIEW OF APPROPRIATE FEDERAL FUNDS RATE AT END-2015 IS 1.125 PCT (PVS 1.00 PCT), END-2016 IS 2.50 PCT (PVS 2.25 PCT), LONGER-RUN IS 3.75 PCT (PVS 4.00 PCT)"
Matthew Graham : "RTRS- FED SAYS 12 OFFICIALS WOULD PREFER FIRST RATE HIKE IN 2015 (PREVIOUS 13); 3 IN 2016 (PVS 2)"