Surprisingly Resilient After Fed Doubles Tapering Pace

After implementing the tapering plan 6 short weeks ago, the Fed quickly found itself in a position to accelerate the pace of reductions.  This was probably going to take the form of 100% increase, but there was some small chance it would be smaller.  The Fed opted for the 100% increase and bonds reacted logically considering the widespread expectations.  In other words, despite the seemingly traumatic news, there was only a modest mount of weakness to endure because it was fairly well priced in.

Econ Data / Events

  • Fed MBS Buying 10am, 11:30am, 1pm

  • Retail Sales 0.3 vs 0.8 f'cast, 1.8 prev

  • NY Fed Manufacturing 31.9 vs 25.0 f'cast, 30.9 prev

  • Import Prices 0.7 vs 0.7 f'cast, 1.5 prev

  • NAHB Housing Market Index 84 vs 83 f'cast, 83 prev

Market Movement Recap
08:39 AM

slightly weaker overnight, then recovering after the retail sales data.  MBS and Treasuries are both perfectly unchanged.  2.5 coupons at 102-04 (102.125) and 10yr at 1.442

10:18 AM

A bit of weakness heading into the 9:30am NYSE open, but it seems to have stabilized for now.  MBS were down an eighth, but now only half that.  10yr yields were up to 1.472, but now back down to 1.441.

02:40 PM

Initial reaction to Fed has been negative with no major correction so far.  But losses have been moderate, especially considering the policy change.  10yr yields are up 2.7bps at 1.468 and 2.5 UMBS are down a quarter point.

03:44 PM

Bonds still trading admirably in context.  10yr up only 1.9bps on the day and 2.5 UMBS down only 6 ticks (.19).