News Headline Summary

Fed says a number on the FOMC favoured more QE after Operation Twist

Minutes say:
- Several FOMC participants questioned effectiveness of asset purchases or whether more purchases warranted if moderate growth sustained
- Many FOMC participants saw risks from global economic weakness
- FOMC participants saw inflation staying at or below 2% target
- FOMC 'generally favoured' zero-rate outlook tied to thresholds

Reaction details (19:11)

- Despite the headline from the minutes indicating a few members on the FOMC favoured more QE after Operation Twist, T-notes saw a muted reaction, moving higher by 2 ticks from 133.31+ to 134.01+ in reaction to the possibility of future treasury buys.
- The largest reaction was seen in the USD, with weakening in the USD currency on the prospect of further QE; this was evident in EUR/USD which popped 26 pips to the upside in immediate reaction, moving from 1.2751 to 1.2777.
- E-mini S&P moved 2.25 points following the minutes over a one-minute period.

Analysis details (19:09)

- Despite the headline indicating QE when Op. Twist expires, attention was paid to the comment that several FOMC participants questioned effectiveness of asset purchases, cancelling out an increase in expectation of large scale assets buys from their next meet.
- As Twist begins to unwind there is now anticipation that the Federal Reserve may announce large scale treasury buys following the announcement in September that they are to buy USD 40bln a month of mortgage-backed securities. One possible scenario is that the sterilization of Twist via sales in the short-end will stop, with the Fed continuing to buy in the long-end as a further tool in their QE arsenal.

14 Nov 2012 - 19:00 - Fixed Income - Source: Newswires

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