Fed Hints At Tapering, But Bonds Don't Care
Why are rates lower despite the Fed announcement taking another step toward tapering? It's a trick question actually. True, the Fed did tweak some verbiage to grease the skids for tapering, but that was widely expected. During the press conference, Powell did a good job of managing market expectations and clearly reiterating the economy is still "a ways away" from justifying a policy shift. Traders basically knew that. Confirmation, combined with uncertainty created by the rapidly changing pandemic landscape (delta, case counts, vax efficacy, masks, etc.), was more than enough to keep rates on a friendly course.
Fed MBS Buying 10am, 1130am, 1pm
slightly weaker overnight despite weaker EU econ data. Best explanation = "range trade," with yields having bottomed out inside the near-term range as of yesterday afternoon. 10s are 3bps higher at 1.269 and 2.0 UMBS are up an eighth of a point at 101-22 (101.69).
Slightly better buying in the AM hours with MBS now just 1 tick shy of unchanged (-0.03). 10yr yields are up only 1.4bps at 1.253%.
Decent amount of volatility and modest amount of weakness after Fed. Powell press conference not having a big additional impact. 10yr yields are no higher than they were earlier this morning, but still up versus 2pm (2.7bps on the day). MBS briefly dipped below AM lows, but are now back above (down an eighth on the day).
Additional gains now after Powell finished the press conference. Bonds are well into best levels. UMBS 2.0 up 2 ticks (0.06) on the day at 101-28 (101.875). 10yr yield down 1bp at 1.229%.