You may see news stories about the Fed shifting its rate hike outlook (conveyed in a dot plot often referred to as "the dots") to "zero hikes in 2019," but that's not today's big news.  Today's big story is exactly the one we were looking for: a concrete announcement on the Fed's bond-buying plans. Specifically, the Fed's previous policy of allowing its balance sheet to shrink by a predetermined amount every month is officially on borrowed time.

Starting in May 2019, the Fed will lower the maximum runoff amount from $30bln to $15bln per month.  Simply put that's an immediate $15bln month injection of new bond buying demand.  If I had to guess (and I don't anymore), I'd say that is both sooner and a bigger move than the market was expecting.  Just for good measure, the Fed didn't say they were going to assess the affects and make future changes.  Rather, they went ahead and said balance sheet runoff completely ends after September 2019.  Yep, that's another $15bln/month of bond buying. 

But that wasn't all... Then in October, they're going to stop letting nearly as much MBS fall off the balance sheet.  The first $20bln of MBS proceeds (basically all of it...) will be reinvested into Treasuries.  Simply put, by October, we're looking at a $50bln/month swing in new bond buying demand that we weren't planning on having a few months ago.

This is about as big and as fast as such things might have possibly happened.  As such, it's no surprise to see bonds rallying aggressively, even though so much of 2019's previous strength can be attributed to hopes for such a move.  10yr yields dropped nearly 10bps to 2.524% and Fannie 3.5 MBS rallied nearly half a point to just under 101-00.


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
100-31 : +0-14
Treasuries
10 YR
2.5240 : -0.0880
Pricing as of 3/20/19 5:59PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:02PM  :  Bonds Surge on Fed Announcement
9:05AM  :  Buyers Replace Sellers at Today's CME Open

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS - FED'S POWELL SAYS BREXIT AND TRADE NEGOTIATIONS POSE RISKS"
Matthew Graham  :  "RTRS - FED'S POWELL SAYS WEAK RETAIL SALES POINTS TO SLOWER SPENDING"
Matthew Graham  :  "deja..."
Matthew Graham  :  "RTRS - FED'S POWELL SAYS GROWTH HAS SLOWED NOTABLY IN EUROPE AND CHINA"
Matthew Graham  :  "I don't think it's all about the shutdown. Europe slowed down significantly. Lots of concern about that, as well as the fallout from trade-related issues, both with China and the EU. Any organic econ slowdown in the US (whatever might exist independent from the shutdown and temporary uncertainty) would only be icing on the cake of concern. All that having been said, I have struggled and continue to struggle to see the wisdom or rationale in this balance sheet 180° from the Fed between Dec 2018 and now."
Robin Smith  :  "Even if you believe it's due to the shutdown, we face another potential for another shutdown before the end of 2Q."
John Tassios  :  "VB, part of it is shutdown, part of it is FED tightening coming through the system, part of it is world slowing, part of it is tariff uncertainty.not only due to shutdown. @2cents"
Hugh W. Page  :  "We won't have a clearer idea on what's going on in the economy until closer to the Fall and now with the Fed taking it's foot off the brake a sharper slowdown may very well not materialize until much later."
Victor Burek  :  "you dont have to be the smartest person to realize the shut down is the reason for weak q1 gdp"
Bryce Schetselaar  :  "close your current pipeline asap before the average freddie rate comes out!"
Matthew Graham  :  "well, I do... (since Jan 3rd, 2019)"
Matthew Graham  :  "2.55, clearly. It's been on the Huddle for i don't know how long"
Jeff Anderson  :  "2.55 top twice near Jan '17 if you look on the 5 year. Right where we're sitting."
Andrew Horowitz  :  "2.48 is an old old level but yeah"
Jason Anker  :  "2.48 next stop?"
Bryce Schetselaar  :  "where are the reprices??"
Gilbert Denizard  :  "what just happened?"
Scott Valins  :  "QE FOREVER!"
Oliver Orlicki  :  "Oh yeah!!!!!!!!!!!!!!!!"
Matthew Graham  :  "- FED SAYS IT PLANS TO PROVIDE MORE DETAILS ON MARKET OPERATIONS IN MAY"
Matthew Graham  :  "FED SAYS TO REDUCE CAP ON MONTHLY REDEMPTIONS FROM $30 BLN TO $15 BLN BEGINNING IN MAY"
Matthew Graham  :  "- FED SAYS INTENDS BALANCE SHEET RUNOFF TO SLOW BEGINNING IN MAY AND END IN SEPTEMBER PROVIDED THAT ECONOMY, MONEY MARKET CONDITIONS EVOLVE AS EXPECTED"
Matthew Graham  :  "- FED KEEPS TARGET INTEREST RATE UNCHANGED AT 2.25-2.50 PCT, SEES NO RATE HIKES THIS YEAR, ONE IN 2020"

Economic Calendar
Time Event Period Actual Forecast Prior
Wednesday, Mar 20
14:00 FOMC rate decision (%)* N/A 2.25 - 2.50 2.375 2.375
14:37 Powell Press Conference *
Thursday, Mar 21
8:30 Philly Fed Business Index * Mar 4.5 -4.1
8:30 Jobless Claims (k) w/e 225 229
8:30 Continued jobless claims (ml) w/e 1.772 1.776
10:00 Leading index chg mm (%) Feb 0.1 -0.1