Reaction details (17:58)
20 minutes following the FOMC decision:
- USD-Index continues to weaken as market participants digest the news that QE will be conducted for a significant portion of time; trades at new lows of 79.73 last.
- T-notes print fresh lows of 133.05+ despite the announcement to conduct outright treasury purchases, with the move lower on touted profit-taking as this was largely expected.
- Equities continue to see upside, with the e-mini S&P printing a fresh of of 1438.50 as the prospect of medium-term QE supports price action.
- Gold continues to print fresh highs as demand for the precious metal as an inflation hedge, and as the USD weakens, sees a strong bid-tone; trades USD 1722.64 last (+USD 14.10).
Analysis details (18:15)
- The Fed's decision to purchase USD 45bln of Treasuries alongside the USD 40bln in MBS buys already already committed is in-line with expectations. The Fed will be buying across the 4-30yr maturities, whereas this month under operation Twist the Fed bought in the maturities 6-30yrs. The Desk anticipates that the Treasury securities purchased will have an average duration of approximately 9 years. Worth of note that there is some mild disappointment that the Fed will be buying slightly fewer long-dated treasuries, as the same value of purchases but a longer maturity range of buys means less in the long-end.
Economic targeting - A new method of communication:
- The adoption of economic targets a.k.a the Evans Rule, is a new announcement from the Fed although was expected. With the Fed now targeting 6.5% unemployment as opposed to simply seeing 'exceptionally low rates through to mid-2015' it suggests QE will be conducted for a few years. PIMCO's Gross suggests QE will be around for between 4-5 years, with the 6.5% unemployment rate only achievable in this time frame with the additional of 200k jobs per month.
12 Dec 2012 - 17:50 - Fixed Income Data - Source: RANsquawk
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