The FOMC statement was the main focus for the markets today, with the long end of the treasury curve and mortgage backed securities taking the brunt of the selling after the release.
Word has it that the lack of commitment by the Fed to buy long-dated treasury issues sparked the selling, even though the statement verbatim said:
The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations. The Federal Reserve continues to purchase large quantities of agency debt and mortgage backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchased and the duration of the purchase program as conditions warrant.
The bottom line here is the Fed will do anything within its power to grease the wheels of the credit markets. Given the text, I think both treasuries and MBS overreacted. With the Fed being the A player, we do not expect mortgage rates or treasury yields to go much higher. Technically, the trend has been bear one day, bull the next. Bears won today and could take the market to the bottom of the channel line at a yield of 2.73% (currently 2.66%). 2.73% should put the brakes on the selling and start a new trend towards lower yields and better mortgage pricing.
Hang in there.
