FOMC Minutes Recap and Market Reactions

By: Matthew Graham •

The Federal Reserve has released the Minutes of the Federal Open Market Committee Meeting held on April 27-28, 2010.

Here are some of the highlights provided by Reuters:

  • Fed April minutes show extended discussion of asset sales, but most favored deferring sales for some time
  • Most preferred eventual sales of agency debt, MBS to speed return of balance sheet to normal
  • Sales of assets should follow framework communicated in advance, go at gradual pace, be adjustable
  • Majority preferred beginning sales "some time" after raising rates
  • Favored approach would postpone any sales until recovery well established, maintains short-term rates as key policy tool
  • Some favored announcing soon a schedule for future asset sales, leaving start of sales unlinked to any interest rate hike
  • A few preferred to begin sales "relatively soon"
  • Some saw advantages to varying longer-term asset holdings in response to economic, financial developments
  • Others thought pre-announced pace of sales that varied little would limit disruptions to markets
  • Most preferred completing gradual sales of assets in about five years
  • Sales could be slow at first, allow markets to adjust, increase over time
  • Some thought faster sales over three years appropriate
  • Participants saw advantages to not rolling over treasuries as they mature
  • No decisions about longer-run strategy for asset sales and redemptions made at April meeting
  •  escalation of Greek crisis seen weighing on financial conditions and confidence in euro area
  • Slower European growth, weaker global recovery possible if European countries intensify fiscal consolidation
  • Some concerned that crisis in Europe could hurt  U.S. financial markets, slow U.S. recovery
  • Participants expected recovery to continue but anticipated pickup in output slower than past deep recessions
  • Seemed unlikely consumer spending to be major factor driving growth in recovery
  • Recovery in housing markets appeared to have stalled in recent months despite government support
  • A number said recovery could lose traction without a substantial pickup in job creation
  • Most anticipated substantial slack, stable inflation expectations to likely to keep inflation subdued for some time
  • Some saw risks to inflation tilted to downside in near term
  • Others saw risks of higher inflation, citing commodity, energy price pressures
  • Some noted inflation expectations could rise due to concerns about huge fed balance sheet



MBS are steady after the FOMC minutes, having traded in a tight range since shortly after 11am.  Currently FN 4.5's are up a tick at 101-31.  10yr treasury yields have come down a bp since FOMC, potentially a good sign for MBS to stage another test of 102-00.  Currently, yields are about half a bp higher on the day at 3.357. 

Stocks initial move following the minutes has been slightly to the downside, with the S&P now at 1114.85 on the day, 3 to 4 points off 2pm highs. 

If these trends continue, it's likely a positive slant for MBS.  Both the treasury and stock moves would constitute salient bounces off both long term and intraday technicals (3.37 support in tsy's and an acceleration of a bounce of 1120 resistance in stocks).  Do please note that MBS have not been keen on cresting 102-00 by much or for long, but if they're going to have a chance at that, it's the continuation of the trends in these other two markets that could allow it.

Whatever the case, we'd be floating until/unless bonds cross back into 3.37 territory or stocks rise over 1120 in the S&P.  So far, so good...