For a while, it looked like today would turn out to be one of those “dud” Fed days where actual market movement woefully undershoots potential market movement. The prevailing 10yr yield range of 3.06-3.09 was intact to an eerie and frustrating extent for a full hour after the initial Fed announcement (and with a big bounce on both sides to emphasize the point!).
Then, in his post-announcement press conference, Powell said something that he probably didn’t think twice about, but that markets were more than willing to latch on to. In not so many words, he said the Fed doesn’t see inflation surprising to the upside. More simply put, inflation should either remain in line with expectations or lower.
Bonds like low inflation, so bonds rallied. We can also assume we’re getting some early month/quarter-end buying (Friday is the last trading day of the month) as well as some short-covering among traders with recently profitable bets on rising rates. Either way, the move is on the friendlier side of our spectrum of potential outcomes for today, but not in a heroic fashion. The remainder of this week and then the first few days of October would be needed to confirm a bigger-picture shift, but today at least served the vital role of keeping that possibility on the table.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
100-30 : +0-08
3.0499 : -0.0521
|Pricing as of 9/26/18 4:57PMEST|
Today’s Reprice Alerts and Updates
3:01PM : Bonds at Best Levels After Powell’s Inflation Comment
2:50PM : Some Weakness With Powell, But Now a Bounce?
2:16PM : Fed Statement and Dots Almost Perfectly Unchanged
2:02PM : First Move Is Stronger After Fed
10:18AM : Slightly Stronger Overnight; Little-Changed Since Then
MBS Live Chat Highlights
Matthew Graham : “VB, I don’t have any specific level in mind for today. In a broader sense, I’d like to get back in the 3.0-3.05% range first and foremost. I wouldn’t read too much into resistance at 3.06% today. That’s not too surprising to see given the tepid reaction (i.e., it’s common for rates to flirt with recent range boundaries if they’re having a generally tepid reaction to something that stood a risk to cause more volatility).”
Victor Burek : “mg…what level important to break?”
Matthew Graham : “POWELL SAYS FED DOES NOT SEE INFLATION SURPRISING TO THE UPSIDE”
Matthew Graham : “RTRS – FED’S POWELL SAYS FED EXPECTS INFLATION TO REMAIN NEAR 2 PERCENT ON A SUSTAINED BASIS”
Matthew Graham : “MEDIAN FORECAST OF FED POLICYMAKERS IS FOR ONE MORE RATE HIKE IN 2018 FOR A TOTAL OF 4; SEES 3 IN 2019, 1 IN 2020, NONE IN 2021”
Matthew Graham : “MEDIAN VIEW OF APPROPRIATE FEDERAL FUNDS RATE AT END-2018 2.375 PCT (PREV 2.375 PCT); END-2019 3.125 PCT (PREV 3.125 PCT): END-2020 3.375 (PREV 3.375 PCT); END-2021 3.375; LONGER-RUN 3.000 PCT (PREV 2.875 PCT) – FED PROJECTIONS”
Matthew Graham : “FED REPEATS RISKS TO THE ECONOMY APPEAR “ROUGHLY BALANCED””
Matthew Graham : “FED SEES SLIGHTLY LOWER PCE INFLATION IN 2019 COMPARED WITH PRIOR PROJECTIONS; PROJECTIONS FOR 2019 CORE PCE AND 2019 UNEMPLOYMENT RATE UNCHANGED”