Yesterday's recap said that bonds were dreaming about the Fed's dot plot (the economic projections released with today's Fed announcement).  In spite of nightmare potential, today's Fed announcement turned out to be a dream come true.  The dots conveyed NO CHANGE in the median view of the Fed Funds Rate at the end of 2017 or 2018!

This is huge.  In plain English, it means the Fed wasn't expecting the same increase in the pace of rate hikes that bond traders had begun to price in over the past few weeks.  In plainer English, we knew the hike would happen, but we didn't know what the Fed was thinking about the pace of additional rate hikes.  Now we do, and it's slower than traders expected.

This facilitated an immediate rally for bond markets following the Fed announcement.  Markets held back just a bit as Yellen's press conference was yet to come.  But as Yellen spoke, it became increasingly clear that she wasn't interested in pushing back on the market reaction.  

When asked why she thought the Fed and markets were so far from being on the same page heading into March, she essentially said that markets got the wrong impression from a Dec 2015 hike that seemed to be perennially delayed, followed by a 12-month wait for the next hike.  The Fed needed to give markets a wake up call to get them onboard with a March hike and a faster rate hike timeline overall, but that didn't mean the timeline had accelerated too terribly much from the last round of Fed forecasts.

Indeed Yellen... indeed.  Now we see that, and we're pleased with the reaction.  10yr yields fell abruptly, ending the day more than 10bps lower at 2.50%.  Fannie 3.5s gained more than 3/4ths of a point, and lenders generally passed most of those gains through to rate sheets.


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
101-21 : +0-25
Treasuries
10 YR
2.5003 : -0.0947
Pricing as of 3/15/17 6:40PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
3:19PM  :  Rally Remains Intact as Yellen Answers Questions
2:04PM  :  First Reaction to Fed is Strongly Positive For Bonds
11:03AM  :  ALERT ISSUED: Some Lenders May be Close to Considering Negative Reprices
8:39AM  :  Bonds Moderately Weaker on Retail Sales Revisions

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Ryan Pietsch  :  "IM ON A BOAT"
Matthew Graham  :  "pretty compelling float opportunity. If you get burned, you'll know right away and you won't be any worse off than you were this morning. More often than not, big momentum on a Fed day starts a trend that lasts at least a few days. We'll have to see how today's momentum ends up though. closing well below 2.52 would be good."
Scott Valins  :  "this now shows you how much acceleration was priced in"
Rob Clark  :  "That is what Gundlach was saying. To many shorts on the long end."
Oliver Orlicki  :  "Blaming the hedge funds for the shorts on bonds"
Andrew Horowitz  :  "relief rally that only looks like 3 hikes this year and not 4"
Matthew Graham  :  "RTRS- FED REPEATS IT WILL REINVEST PRINCIPAL PAYMENTS FROM ITS HOLDINGS UNTIL RATE NORMALIZATION IS WELL UNDER WAY"
Matthew Graham  :  "RTRS- NINE OF 17 FED POLICYMAKERS SEE 3 RATE HIKES IN 2017 COMPARED WITH 6 OF 17 HOLDING THAT VIEW IN DECEMBER"
Matthew Graham  :  "RTRS- MEDIAN VIEW OF APPROPRIATE FEDERAL FUNDS RATE AT END-2017 1.375 PCT (PREV 1.375 PCT); END-2018 2.125 (PREV 2.125 PCT): END-2019 3.000 (PREV 2.875 PCT) LONGER-RUN 3.000 PCT (PREV 3.000 PCT) - FED PROJECTIONS"
Matthew Graham  :  "RTRS- FED RAISES TARGET INTEREST RATE TO 0.75-1.00 PCT; CONSENSUS FIRMS FOR THREE RATE HIKES IN 2017"