• Anxiety was growing yesterday about the Fed Minutes surprising
  • Bonds weakened
  • The Fed Minutes surprised
  • Bonds weakened some more
  • This could be a big deal

Every now and then a Fed-related revelation comes along that forces markets to "reprice" the risk of a certain monetary policy outcome.  In the current case, the outcome on everyone's mind is the Fed's next rate hike.  Until yesterday, markets weren't too concerned about it, and that was a concern for the Fed--so much so that several Fed speakers have lamented the fact recently.

Yesterday marked a turning point for the market's dismissiveness over Fed rate hike potential after both Williams and Lockhart--2 Fed presidents not known for fringy ideologies--essentially said a June hike was more possible than markets realized.  

Today, markets realized it as the first newswire released from the Fed Minutes said: "MOST U.S. FEDERAL RESERVE POLICYMAKERS JUDGED IT WOULD LIKELY BE APPROPRIATE TO RAISE INTEREST RATES IN JUNE IF DATA REMAINS CONSISTENT WITH Q2 GDP PICKUP, FIRMER LABOR MARKET CONDITIONS AND PROGRESS ON INFLATION."

In short, investors simply weren't pricing in the possibility of a June hike before yesterday, and have moved quickly to correct that over the past 2 trading sessions.  Today was obviously the bigger of the two moves, and it sets off all sorts of negative technical warnings about further negative momentum.  It's probably safest to assume that's on the way until markets give us a convincing reason to believe otherwise.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
102-03 : -0-10
Treasuries
10 YR
1.8560 : +0.0970
Pricing as of 5/18/16 5:01PMEST
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Hugh W. Page  :  "AH I think all this jawboning by Fed Members is exactly what you say. Their attempt to keep the markets in a position where they're not surprised. But the longer they talk with no action the tougher it is for them to make that work."
Peter Lassig II  :  "GF: Me tooo -An important client."
Rob DiGiore  :  "same here GF"
Gus Floropoulos  :  "Thank God for MBS Live. Got a major lock in b4 reprices hit here."
Matthew Graham  :  "and they've done exactly that with these minutes and yesterday's jawboning"
Hugh W. Page  :  ""Every meeting is a live meeting" oh and this time we really really mean it"
Matthew Graham  :  "they want to reserve the right to hike in June without markets dismissing the possibility"
Matthew Graham  :  "Yep, their whole argument was "hey you guys! you're totally not taking this rate hike potential seriously enough! C'mon!" Of course they can edit the minutes to emphasize whatever points they like. Now their mission is accomplished, and they've left themselves in a more flexible position for a June hike, end of story."
Andrew Horowitz  :  "they will hike because they want to hike"
Matthew Graham  :  "RTRS - PROBABILITY OF JUNE RATE HIKE BY FED RISES TO 34 PCT AFTER FOMC MINUTES RELEASE VS 19 PCT EARLIER ON WEDNESDAY, 15 PCT ON TUESDAY - CME FEDWATCH"
Bryce Schetselaar  :  "queue the reprices"
Matthew Graham  :  "RTRS- A FEW POLICYMAKERS SAW IT AS APPROPRIATE TO INCREASE RATES AT APRIL MEETING; TWO WORRIED THAT U.S. CENTRAL BANK WAS BEHIND CURVE ON INFLATION"
Matthew Graham  :  "RTRS- SOME POLICYMAKERS NOTED GLOBAL FINANCIAL MARKETS COULD BE SENSITIVE TO UPCOMING BRITISH REFERENDUM ON EU MEMBERSHIP OR UNANTICIPATED DEVELOPMENTS DUE TO CHINA'S MANAGEMENT OF ITS EXCHANGE RATE"
Matthew Graham  :  "RTRS- SEVERAL POLICYMAKERS JUDGED RISKS TO U.S. ECONOMIC OUTLOOK AS NOW ROUGHLY BALANCED; MANY OTHERS CONTINUED TO SEE DOWNSIDE RISKS"
Matthew Graham  :  "RTRS - POLICYMAKERS EXPRESSED RANGE OF VIEWS ON WHETHER THERE WOULD BE ENOUGH INCOMING DATA TO WARRANT JUNE RATE HIKE"
Matthew Graham  :  "RTRS- SOME POLICYMAKERS EXPRESSED CONCERN THAT FINANCIAL MARKETS MAY NOT HAVE ACCURATELY ASSESSED THE CHANCE OF A JUNE RATE HIKE, EMPHASIZED IMPORTANCE OF CENTRAL BANK CLEARLY COMMUNICATING HOW IT WILL RESPOND TO INCOMING DATA"
Matthew Graham  :  "RTRS- MOST U.S. FEDERAL RESERVE POLICYMAKERS JUDGED IT WOULD LIKELY BE APPROPRIATE TO RAISE INTEREST RATES IN JUNE IF DATA REMAINS CONSISTENT WITH Q2 GDP PICKUP, FIRMER LABOR MARKET CONDITIONS AND PROGRESS ON INFLATION - MINUTES F"
Bill Hills  :  "knee jerk reaction... things will settle down... and bonds will rally in the coming week. I have zero technical evidence or market knowledge to support this forecast. It is simply my hope and my wish."
Timothy Baron  :  "At this point, why lock? The damage is done."
Gilbert Denizard  :  "Hey Matt, yet again your alert was worth the price of membership...thanks for the heads up!"
Matthew Graham  :  "no, more like markets just worried about being caught flat-footed with a Fed that's a bit closer to hiking than recent consensus suggests"
Andrew Haynes  :  "end of the day, the fed just needs to pack their bags, this economy needs fiscal policy more than monetary policy at the moment"
Hugh W. Page  :  "REPRICE: ALL LENDERS WORSE"