Market's Fear is Bigger Than The Fed's Appetite For Destruction
The Fed is on a mission to destroy demand for goods and services to a sufficient extent to push inflation back toward livable levels. With only one rate hike up from the zero lower bound and the gigantic balance sheet of bonds yet to shrink, one could rightfully argue they've barely begun to destroy. The market, on the other hand, is reading ahead in the script and acting preemptively. Today's reaction to Brainard's comments (which she likely never imagined would tank the bond market back to multi-year yield highs) is the latest example. Brainard said nothing new. She merely flashed a Fed bazooka that has yet to be fired and financial markets spontaneously combusted.
Fed MBS Buying 10am, 11:30am, 1pm
Laundry list of unsatisfying justifications resulting in sharp bond market weakness. 10yr up 6.8bps to 2.462 and MBS down about 3/8ths.
Heavy selling after Brainard comments. MBS down 3/4 of a point. 10yr up 13.7 bps at 2.53%.
Slightly weaker, then sideways after the last update. Fed's Daly joining in the normalization chorus. 10yr up 16bps to 2.554 and MBS down just over 3/4 of a point.
Yields near highs and MBS prices at lows of the day. 4.0 coupons down nearly an entire point. 10yr up 16+ bps at 2.556%