Updated Information Coming Out from the Fed's Meeting
The Federal Reserve Open Market Committee (FOMC) has
announced that they will leave their key interest rate alone and commented that
they may not even touch that rate until the Unemployment Rate falls even lower
than their original trigger point of 6.50% - but they have elected to decrease
the amount of their monthly asset purchase program (aka "taper").
Their initial monthly decrease (which can be adjusted upward or downward each month) is $10 billion less. They are moving from $45 billion in Treasuries down to $40 billion. They are moving from $40 billion in agency MBS down to $35 billion. So, this is evenly split between the two.
Only a third or less of the traders expected a taper at this time although the data was certainly supportive of it (as we have discussed). While this is a surprise to the market place, it could have been a lot worse. They have certainly eased into and have tempered it with some dovish comments.
As a result, Treasuries and MBS are naturally selling off which is more than justified. But it is certainly wild...MBS tanked -53BPS and then started to bounce back.
We need to pay close attention to Bernanke's comments at 2:30EST. They could calm bond traders and help take the initial sting out of their announcement...or just the opposite could happen.
Their initial monthly decrease (which can be adjusted upward or downward each month) is $10 billion less. They are moving from $45 billion in Treasuries down to $40 billion. They are moving from $40 billion in agency MBS down to $35 billion. So, this is evenly split between the two.
Only a third or less of the traders expected a taper at this time although the data was certainly supportive of it (as we have discussed). While this is a surprise to the market place, it could have been a lot worse. They have certainly eased into and have tempered it with some dovish comments.
As a result, Treasuries and MBS are naturally selling off which is more than justified. But it is certainly wild...MBS tanked -53BPS and then started to bounce back.
We need to pay close attention to Bernanke's comments at 2:30EST. They could calm bond traders and help take the initial sting out of their announcement...or just the opposite could happen.
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