While a few lenders have already repriced positively, most have stayed sidelined on what is STILL an extremely muted response to the FOMC Statement. As for the statement itself, it was more economically bullish in parts, removing the indecision as to whether or not economic growth would be able to spur job creation, instead opting to refer to moderate growth leading to gradual declines in unemployment.
This was and still is a potentially perilous distinction for bond markets, though solace is presently derived from the absence of “new, bad news.” In other words, there were no changes to how the Fed will be approaching Treasury or MBS purchases. In fact, without reading too much into it, there weren’t any material changes at all.
This leaves the near term focus on Friday’s NFP as the week’s major guidance-giver. The nearer term focus is the absence of auction supply, the presence of scheduled Fed buying, and Month-end balance sheets to account for tomorrow, not to mention the probability of more short-covering helping give the appearance of a positive reaction when not much of a positive reaction is justified.
Regardless of our distrust of the rally, it has held up better into the late afternoon, with MBS and Treasuries both moving back to pre-FOMC levels and bouncing fairly nicely toward the best levels of the day. This says nothing of tomorrow’s activity. Things are still very much up in the air. Nothing was resolved here today–frustratingly–but less frustrating is the brief moment of reprieve with a greener color on the screens. Hopefully it doesn’t turn out to be an “enjoy it while it lasts” scenario. Even though we don’t have material evidence to suggest that is the case, neither could we disprove it beyond a reasonable doubt. Bottom line: don’t get complacent here, or at least don’t plan on major follow through without support from NFP on Friday morning.