MBS are up +12/32 (FNMA 30-yr 3.5 at 103.12), close to most volatile morning levels, but 4/32 below the highs. First some favorable and later some unfavorable repricing was seen. Weaker than expected economic data caused a nice rally in MBS this morning, but some of the gains were lost after the Fed meeting (see below). The Dow is up 50 points. Tomorrow, Philly Fed, Import Prices, Empire State, and Industrial Production will be released.
The Fed provided more details on its plan to reduce its holdings of Treasuries and MBS. The reduction is expected to start some time in 2017. They will reduce their holdings by not reinvesting all the principle payments received, as they are currently doing. The amount of principle payment received that will not be reinvested will start at $10 billion per month and will grow over twelve months to $50 billion per month. This plan told investors that future demand from the Fed for MBS may be lower than had been expected, which hurt MBS prices.