Thursday, September 24, 2009

Market Reflections 9/23/2009

The only surprise in the FOMC announcement was the extension of mortgage-backed and agency repurchases to the end of the first quarter, a move aimed at easing the risk of a yield spike when the Fed finally exits the market. The programs are still capped at $1.25 trillion for mortgage-backed securities and $200 billion for agencies. The $300 billion Treasury purchase program will wind down by the end of next month as previously announced. Demand for Treasuries picked up following the statement which included a favorable outlook for inflation. Yields edged back with the 7-year note ending at 3.04 percent. The Treasury will auction $29 billion of 7-year notes tomorrow, ending a record week of supply.

The FOMC statement did not include an exit strategy for quantitative easing. But commodities showed very little reaction in a clear indication that inflation expectations remain stable. Gold did pop up more than $5 in immediate reaction to the statement but hit resistance at $1,020, a level it's hit several times over the past week. The dollar index showed little reaction, rising off session lows to end fractionally higher at 76.21. Stocks edged higher with the S&P once again making a new 2009 high before slipping at the close to end 1 percent lower at 1,060.

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