There was a sharp sell-off in the bond market on Friday afternoon--at least relative to the day's relatively calm trading patterns--as the Fed once again announced an updated bond buying schedule for the following week. It was a repeat of a similar performance seen at the end of last week when the Fed cut Treasury purchase limits from $50 bln per day to $30 bln. The Fed's mortgage purchases walked a similar path, falling to $15.5bln / day this week from $25bln / day for most of last week (and $40bln the week before that).
Today's cut to Treasury purchases was notable because it was the first time the amount fell by at least 50%. Specifically, the Fed will now cap buying at $15 bln per day in Treasuries versus this week's $30bln daily total. MBS purchase limits were pared to a range of $8.9-10.6 bln per day--a far cry from the $50bln/day seen 3 weeks ago.
It's not that bond markets weren't expecting the Fed to continue pruning its buying schedule. Rather, the adjustment was a bit bigger than anticipated. As such, the market reaction was fairly quick, but not excessive in the bigger picture. 10yr yields moved from .61% to just over .65% on the news and 2.5 UMBS coupons dropped less than a quarter point.
Here are links for the buying schedules:
MBS Market Alerts
