MBS Live Morning: Fed Day! Here's What Matters

Recent major Fed communications have had a tendency to stoke the fires of momentum in the bond market.  This began in earnest in September.  Not every meeting or meeting minutes release has been bad for bonds, but almost all of them have resulted in some movement.

Today's should be no exception despite the fact that the Fed will not be making any official policy/rate changes.  So why does it matter?  Simply put, markets want to know the extent to which recently broadcast shifts in the policy outlook are "locked in."  Is the March hike a done deal?  Will balance sheet normalization follow 3-6 months later?  The answers were unequivocally "yes" as of last week.  Now this week, some investors seem to think the Fed will soften its tone in light of the massive stock market sell-off.  Any such softening would likely be reserved for the 2:30pm Powell Press Conference where it would be far from unequivocal, but still a source of major volatility.

If the Fed is perceived as friendly, rates have a chance to continue the consolidation in the sub 1.8% 10yr yield range.  With the day beginning at 1.78%, it seems unlikely that we'd get a meaningful challenge of the 1.70% technical level.  In the event the Fed is unfriendly, it's easy to make a case for a break above the 1.8% technical ceiling.