The only thing remaining on the docket for today is Big Ben opening his big mouth. The good news is that there is not likely going to be anything new coming out of it. Remember, Ben Bernanke will do whatever it takes to avoid deflation, even if it results in hyperinflation, so why would anything change if he can help it.
The 5-year T-Note Auction went solid, building on yesterday’s 2-year T-Note Auction and the expectations of “nothing changed” in the FOMC Meeting. The bid/cover was 2.77, roughly the same as last auction’s 2.79 and the High Yield dropped to 2.124%.
As for the FOMC Meeting Announcement, it was essentially a broken record, repeating the same thing. QE2 is going to be completed as planned, the full $600B of it, despite growing opposition. While inflation has grown recently, long-term inflation is seen as tame in the Fed’s eyes. The “extended period” language remains intact, as does the FFR at 0-1/4%. Despite many Feds speaking about concerns they have surrounding inflation and their desire to even see QE2 cutback, not one voted against current monetary policy. The means one of several things: 1) Fed speeches are more attempts at market manipulation, 2) Feds opposed to QE2 lack the balls to vote accordingly, and/or 3) Ben Bernanke controls the group with voting rights.
As for market reaction, MBS prices ha been rebounding somewhat, but have since fallen back. It has been a volatile as expected, but it looks like the corrective move will hold. As for the long-term outlook, it remains to be solidified as a new pattern has not formally formed. Therefore, no change in stance from what I mentioned this morning.