Today's focus was understandably on the Fed Announcement, and indeed, most of the movement followed it.  But interestingly enough, the biggest volume spikes occurred at other times, and that helps explain the day's paradoxical movement.

So what's the paradox?  

Quite simply, it made very little sense to see as much of a rally as we saw based on the content of the Fed Announcement.  

Why?  

Because the announcement was utterly inoffensive.  If you'd commissioned a thousand market participants and Fed followers to draft a consensus estimate for the Fed, it would have looked exactly like today's actual announcement.  In short, there was nothing even remotely resembling a surprise.

Where'd the rally come from then?  

Bear with me here.  The rally came from yesterday's sell-off.  As we discussed, yesterday was an odd day with unsatisfying explanations for the weakness, mostly having to do with esoteric nonsense like tradeflow momentum, position imbalances, position squaring ahead of auctions and the Fed, and a bit of algorithmic trading in response to technical levels.  

How much could all that nonsense have really mattered compared to an actual market mover like the Fed?

Let's put it this way: yesterday's volume was higher than today's, and there were no big ticket events on the econ calendar.  Moreover, today's biggest volume spike came at 3pm ET (the CME close, and a time of day where tradeflows can swell simply because it's many traders' last opportunity of the day to adjust positions.  The other big spike (bigger single-minute volume than the minute following the Fed announcement) came at 9:17am and was directly attributable to two big block trades reported through the CME site.  That's a bunch of fancy talk for traders taking cues from what other traders are doing and/or "tradeflow momentum."

The 5yr auction at 1pm played a supporting role in the positivity, coming in much stronger than expected.  The caveat is that yesterday's bond market weakness certainly made it easier for traders to bid at the auction, and we can assume the results would have been average-to-weaker were it not for yesterday's sell-off.


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
102-28 : +0-07
Treasuries
10 YR
2.2925 : -0.0335
Pricing as of 7/26/17 6:42PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:17PM  :  Analysis of Changes in FOMC Statement (and a note on MBS spikes)
2:03PM  :  First Move Following Fed is Slightly Stronger
1:12PM  :  Strong 5yr Auction Stats Help Bond Markets Dig In Ahead of Fed
8:45AM  :  Calm, Flat Overnight Session Leaves Bonds Essentially Unchanged

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS - FED REPEATS NEAR-TERM RISKS TO THE ECONOMY APPEAR 'ROUGHLY BALANCED' BUT IT IS MONITORING INFLATION DEVELOPMENTS CLOSELY"
Matthew Graham  :  "RTRS - FED SAYS EXPECTS INFLATION TO REMAIN SOMEWHAT BELOW 2 PCT IN NEAR TERM BUT STABILIZE AROUND ITS 2 PCT OBJECTIVE IN MEDIUM TERM"
Matthew Graham  :  "RTRS- RPT-FED EXPECTS INFLATION TO REMAIN SOMEWHAT BELOW 2 PERCENT IN NEAR TERM BUT STABILIZE AROUND ITS 2 PERCENT TARGET IN MEDIUM TERM"
Matthew Graham  :  "RTRS - RPT-FED SAYS OVERALL INFLATION MEASURES EXCLUDING FOOD AND ENERGY HAVE DECLINED AND ARE RUNNING BELOW 2 PERCENT"
Matthew Graham  :  "RTRS - RPT-FED SAYS IT WILL REINVEST PRINCIPAL PAYMENTS FROM ITS HOLDINGS "FOR THE TIME BEING""
Matthew Graham  :  "RTRS- RPT-FED LEAVES TARGET INTEREST RATE UNCHANGED AT 1.00-1.25 PERCENT, SAYS TO IMPLEMENT BALANCE SHEET NORMALIZATION "RELATIVELY SOON""
Matthew Graham  :  "A/A+ outright, but not quite as strong considering yesterday's weakness."
Matthew Graham  :  "RTRS - PRIMARY DEALERS TAKE 24.06 PCT OF U.S. 5-YEAR NOTES SALE, DIRECT 6.18 PCT AND INDIRECT 69.76 PCT"
Matthew Graham  :  "RTRS - U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.58, NON-COMP BIDS $37.33 MLN"
Matthew Graham  :  "RTRS - U.S. SELLS $34 BLN 5-YEAR NOTES AT HIGH YIELD 1.884 PCT, AWARDS 12.57 PCT OF BIDS AT HIGH"
Matthew Graham  :  "So the average result would put the yield award at 1.897"
Matthew Graham  :  "Recent average bid-to-cover has been 2.40x. Indirect Bidding: 63.6%, and high yield +0.4 bps vs 1pm when-issued (like the estimated auction yield). Current WI yield = 1.893."
Matthew Graham  :  "5yr auction preview follows. If any of the verbiage is confusing (and it should be, by default), here's the decoder ring: Treasury Auction Jargon, Definition, and Significance "