To me, the most significant Fed action today was the decision to roll Agency debenture payoffs into new investments into MBS. That, in addition to reinvesting all the principal payments on the current portfolio of MBS will probably trim about 5 basis points off the Treasury/MBS basis, IMO.
These last few weeks the Treasury market has been positioning itself for “Operation Twist,” the extension of duration in the Fed’s Treasury portfolio. That blew our ten-year Note yield right through the 2% yield “barrier” that seemed to be the limit of the anti-European trade.
1.86% yield on the 10-year as I type. The Long Bond (30 yr) is now yielding just over 3%.
Welcome to 1930’s yields.
Too bad we can’t just take all the “free” money the bond market is offering us, and do something useful with it.
PS My buds on the MBS trading desks tell me that the immediate effect has been a whopping 15 basis points of tightening. That is most likely due to surprise, and people caught “offsides” by the announcement are scrambling to readjust their hedges. I don’t expect the full 15 basis point tightening to be there a week from now.