Today's Fed announcement was decidedly more downbeat than the previous iteration and markets reacted accordingly.  There was never any real chance that the Fed would actually hike rates this time around, so we can be sure the reaction was purely a function of the Fed's chosen verbiage.  Here are a few examples of the downgraded verbiage.  These are subtle in and of themselves, but as far as Fed announcements go, this is about as much of a shift as we see without an accompanying policy decision:

  1. The Fed changed from viewing economic activity as "expanding at a moderate pace" to "slowed late last year."
  2. The Fed now says that fixed investment is "moderate" as opposed to "solid."
  3. The Fed now says that inventory investment has slowed.
  4. The Fed now says inflation compensation (market-based inflation metrics from TIPS trading levels) declined further as opposed to merely remaining low. 
  5. The Fed is now "closely monitoring global economic and financial developments."  That's an entirely new thought.

Offsetting all of that was the one thing we already know is going well: job creation.  The Fed has been clear that they don't view low unemployment as the last word on the overall state of the economy.  In any event, it was no surprise after the recently strong Payrolls reports.

Bonds and stock prices fell in unison after markets had a moment to work through the subtleties.  Treasuries and MBS eventually made it back into positive (or unchanged) territory on the day.  That was nearly a 3/8ths point gain from the lows for Fannie 3.0 MBS.  Quite a few lenders repriced positively. 


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.5
104-11 : +0-01
Treasuries
10 YR
2.0030 : +0.0070
Pricing as of 1/27/16 6:09PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:13PM  :  Bonds Bounce Back After Decidedly Dovish Fed
1:06PM  :  ALERT ISSUED: Negative Reprice Risk Increases After weak 5-yr Auction
11:41AM  :  ALERT ISSUED: Bonds at Weakest Levels as Stocks Surge; Limited Reprice Risk
10:37AM  :  Bonds at Weakest Levels; Most Data Ignored

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Christopher Stevens  :  "The 2.00 line seems pretty solid for the 10YR. Not sure what it will take to move decidedly below it but based on the recent drop in our stock market, oil price declines and the new Fed language it seems like it will take a hell of a lot."
Nathan Stotlar  :  "Looking at my stats, the most popular newsletter I sent in the last month was "Lets talk about beer". Surprising..."
Hugh W. Page  :  "It's a pretty time consuming process. It took me all of 15 seconds to post that update on FB ....."
Ted Rood  :  "I have already gotten 3 deals by using the newsletter"
Matthew Graham  :  "yes and yes. https://app.marketnewsletters.com/Account/Login"
Sharla Beacham  :  "is there a link for this and can I share through my FB business page?"
Matthew Graham  :  "Don't forget that you can share MBS Live updates via the new newsletter marketing system. So here only 13 minutes after the announcement, you could be emailing your colleagues and/or clients with a thorough recap of the FOMC Announcement and up-to-the-minute market reaction."
Matthew Graham  :  "RTRS- FED VOTE IN FAVOR OF POLICY WAS UNANIMOUS"
Matthew Graham  :  "RTRS- FED REPEATS ANTICIPATES KEEPING EXISTING POLICY OF REINVESTING PRINCIPAL PAYMENTS UNTIL NORMALIZATION OF RATES IS "WELL UNDER WAY""
Matthew Graham  :  "RTRS - FED REPEATS EXPECTS ECONOMIC CONDITIONS WILL EVOLVE IN WAY THAT WARRANTS "ONLY GRADUAL INCREASES" IN FED FUNDS RATE"
Matthew Graham  :  "RTRS - FED SAYS LABOR MARKET IMPROVED EVEN AS ECONOMIC GROWTH SLOWED LATE LAST YEAR"
Matthew Graham  :  "RTRS - FED SAYS STILL EXPECTS EFFECTS OF ENERGY DECLINE AND STRONG DOLLAR TO PROVE TRANSITORY, ALLOWING INFLATION TO RISE IN THE MEDIUM TERM"
Matthew Graham  :  "RTRS - FED SAYS CLOSELY WATCHING GLOBAL ECONOMIC AND FINANCIAL DEVELOPMENTS TO ASSESS BALANCE OF RISKS TO THE U.S. ECONOMIC OUTLOOK"
Matthew Graham  :  "RTRS- FED REMOVES REFERENCE IN STATEMENT THAT RISKS TO OUTLOOK ARE BALANCED"
Matthew Graham  :  "RTRS 27-Jan-2016 11:00:00 AM - FED LEAVES TARGET INTEREST RATE UNCHANGED AT 0.25-0.50 PCT"