Trading Desk Post-FOMC Reactions Trickle In
From a reputable trading desk:
We all knew that Dudley had put in the QE floor at $500bn, the FOMC had no choice but to shoot higher to make any statement on intent but I'm troubled by slow pace of the QE add, $600bn over 8 months or roughly $75bn/month....I think we had expected a min of $100bn/month.
We should glean that 2011 is now completely written-off for rate hikes, there is a definite statement of worry on the key Housing sector, Employment and especially around 'low-ball' Inflation......the front-end accruals will all continue to work.
**Note: our current reccommendation is to buy the Green or 2yr Mar11 M/C 98.875/99.125 1x2 Callspread to capture the ride!**
The Fed is pegging the curve to stabilise the 10yr sector, with purchases to have an average duration of 5 to 6 years....we already saw 10yr option volatility hammered pre-announcement and let me remind you that our friends at PIMCO are short +200K of TY strangles around and including the 124 Puts and the 129 Calls!!!!
The longer-end of the treasury curve will remain very volatile!...nothing we can do about it...however, I'm sure the Fed actually has an intention to drive these yields lower...they may have failed with this paltry effort....I do hope that there statement of reviewing this process actually occurs...and soon!
Something interesting, as a slight aside, only Hoenig registered his dissent, all pundits claim that there is a firm 'gang of 3' still within the Fed ranks and this dissent will be seen when we get the Board Minutes of today's decision.
Furthermore, there will be further pressure of Bernanke, both internally and vocally externally....watch out this is a rotten situation that will further be exaggerated in January with new voting members.