The Federal Reserve Open Market Committee has released the March FOMC Statement.
On the whole the Fed hinted at an upgrade in economic conditions. Saying the information received since January "suggests" the economic recovery is on "firmer footing". The labor market also "appears" to be "improving gradually". Household spending and business investment continue to "expand". On inflation, the Board acknowledged rising food and energy prices but said it anticipates the effects to be "transitory" or temporary. Longer-term inflation expectations are stable. The Fed made no mention of the crisis in Japan or conflict in Northern Africa/The Middle East. The QEII bond purchasing program is expected to continue as planned before ending in June. No voters dissented the decision.
Plain and Simple: Although the language surrounding the upgrade indicates a hesitancy to get overly excited ("suggests" and "appear"), the tone of the statement implies the Fed is feeling more confident about the economic foundation it has built since the financial collapse in 2008.
Market Reaction...
Bonds are weaker and stocks are stronger Following the FOMC Statement.
Stock prices and Treasury yields CONTINUE to share a high amount of positive correlation, both are at their highs of the day, but shy of yesterday's lows (see chart below). 10 yr yields are now "only" 4.74 bps lower on the day at 3.318 while the S&P is "only" 12 pts and change lower at 1283.48. (yields were nearly 10 bps lower earlier in the day and S&P over 20 points lower!)
MBS have actually dipped slightly below yesterday's best levels, but have held 102-05 or better since the statement.
Despite today's losses, MBS and Treasuries both have a reasonable distance to go before they'd be reversing their longer term bullish signal around recent pivot points. The chart below shows these pivot points for both markets, around 101-27 in MBS and around 3.40 (currently, but a moving target eventually) in Treasuries.