MBS UPDATE: FOMC MINUTES OUT

By: •

The short end of the MBS stack continues to outperform benchmark Treasury Notes after President Obama released an outline of his Housing Plan. We are feeling more optimistic about a stall in the "up in coupon" bias but are however not ready to throw an all out "down in coupon" party. 

Borrowers: this does not mean your mortgage banker/broker will be able to offer you a 4.00% mortgage rate already. We don't even know if rates will go that low....what we do know is...

From a trading perspective 6.5 and 6.0 coupons should now be shunned and 5.5s are a questionable buy if down in coupon ensues at a faster pace than expected. At this point MBS investor sentiment will be more closely related to the feelings we experienced in early January...the MBS market will looking to protect themselves from prepayment risk by moving "down in coupon". Until we get further details regarding GOVERNMENT PLANS...the pace of "down in coupon" and the extent to which lenders are willing to pass along gains should remained slightly subdued/protective.

 

FN30______________________________                

FN 4.5 -------->>>> +0-02 to 101-06 from 101-04                                      

FN 5.0 -------->>>> +0-01 to 102-07 from 102-06                                 

FN 5.5 -------->>>> +0-00 to 102-23 from 102-23   

FN 6.0 -------->>>> -0-03 to 103-09 from 103-12                                       

The FOMC Minutes have been released... http://www.federalreserve.gov/newsevents/press/monetary/20090218a.htm

"The Federal Reserve on Wednesday released, for the first time, longer-run economic projections made by Federal Open Market Committee (FOMC) participants...

The longer-run projections represent each participant's assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and absent further shocks to the economy. "Appropriate monetary policy" is defined as the future policy deemed most likely to foster outcomes satisfying the Federal Reserve's dual mandate of maximum employment and price stability.

The longer-run projections for output growth and unemployment may be interpreted as the estimates of FOMC participants of the rate of growth of output and the unemployment rate that appear to be sustainable in the long run, taking into account important influences such as the trend growth rates of productivity and the labor force, improvements in worker education and skills, the efficiency of the labor market at matching workers and jobs, government policies affecting technological development or the labor market, and other factors. The longer-run projections of inflation may be interpreted as the rates that each Federal Reserve Board member and Federal Reserve Bank president sees as most consistent with achieving the dual objectives of maximum employment and price stability.

The central tendency of FOMC participants' longer-run projections, submitted for the Committee's January 27-28 meeting, were:

  • 2.5 to 2.7 percent growth in real gross domestic output
  • 4.8 to 5.0 percent unemployment
  • 1.7 to 2.0 percent inflation, as measured by the price index for personal consumption expenditures (PCE).

Most participants judged that a longer-run PCE inflation rate of 2 percent would be consistent with the dual mandate; others indicated that 1-1/2 or 1-3/4 percent inflation would be appropriate."

Content Update: Sorry for the lack of content today. Matt and I are diligently writing a mortgage focused analysis of recent events...lots to analyze so please bear with us while we prepare a digestible explanation.

Treasury Yields are all over the place while equity investors sort through the deluge of headline news...

Recommended Video: PBS Documentary INSIDE THE CRISIS  (WATCH NOW)