MBS Day Ahead: Fed Minutes Are Less Interesting After Yesterday's Powell Speech

In the day just passed, bonds initially tried to erase the weakness seen in Monday's session. They were largely successful in the morning hours, but began to slide in the afternoon. Although trade-related headlines drew the biggest response in terms of volume, most of the focus was on an afternoon speech from Fed Chair Powell , who made balance sheet expansion seem like an imminent decision. To some, "balance sheet expansion" sounds like QE4, but don't be fooled. The was talking about "adequate levels of reserves" all the way back in March 2019 when it phased in its balance sheet normalization principles. Powell also specifically mentioned the Treasury bill market as being a potential target for expansion--a fact that helped shorter-term bonds rally while longer...(read more)

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