The Fed Is Preparing QE 2.0, MBS-Only Edition

We all knew it would happen, and now the Fed is implicitly confirming it - Quantitative Easing 2.0 is on the docket, with a sole purpose of purchasing of MBS, reports Market News. As the private MBS market is dead and buried, much more on this coming in a post later today, the Fed can not afford to abandon MBS and the GSEs in March. If it does, it is game over for interest rates, mortgages, and the stock market. Period.

From Market News:

Fed officials, are prepared to contemplate changes if need be, depending on conditions in the economy, housing finance and in financial markets more broadly.

"Among the options that has been discussed, say people in a position to know, is doing additional MBS purchases."

And, again, as all know, QE 2.0 only for MBS will be insufficient, as even if the 10 Year UST - 30 Year Mortgage spread goes to zero, Treasuries, especially the 10-30 year part of the curve, are set to explode courtesy of trillions in new treasury issues in the coming months. 

Look for the dollar to renew its downward trajectory as this story picks up steam, even as events in Europe imply the euro is massively overpriced. Race to the bottom, 2010 edition, is back.