MBS RECAP: Fed Hikes, But Tame Dots Fuel Bond Rally


Posted To: MBS Commentary

Yesterday's recap said that bonds were dreaming about the Fed's dot plot (the economic projections released with today's Fed announcement). In spite of nightmare potential, today's Fed announcement turned out to be a dream come true. The dots conveyed NO CHANGE in the median view of the Fed Funds Rate at the end of 2017 or 2018! This is huge . In plain English, it means the Fed wasn't expecting the same increase in the pace of rate hikes that bond traders had begun to price in over the past few weeks. In plainer English, we knew the hike would happen, but we didn't know what the Fed was thinking about the pace of additional rate hikes. Now we do, and it's slower than traders expected. This facilitated an immediate rally for bond markets following the Fed announcement…(read more)

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