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FOMC Holds Steady, Sees Same Next 2-3 Years

US TSYS SUMMARY
Dovish FOMC with glimmers of hope on the horizon: Fed leaves rate on hold, QE steady (will warn in advance of taper), keeps IOER at 0.10%, RRP at 0.0 w/counterparty cap up to $80B from $30B.
  • Fed signals rates to remain at zero through 2023, state of economy in 2-3 years is highly uncertain. Meanwhile, Fed projects inflation at 2.4% in 2021, up from earlier 1.8% est., 2.0% in 2022 and 2.1% in 2023.
  • Salient Fed Chair Powell Q&A comments: don't read too much into the March SEP; too soon to talk tapering; brushes off qn re: SLR extn, will address in coming days; shrugs off any transitory rise in inflation.
  • Choppy session, two-way trade on heavier volumes, FVM futures outperformed, Bonds bounced but remained weaker after the bell; Yield curves nearly breached Feb 25, 7+ year highs: 5s30s tapped 166.212 vs. 166.984 in Feb.
  • Tsy option trade continues theme of more consistent upside call buying on day -- but volumes not exceptionally large. Trades were short term tactical in the event FOMC deemed dovish. Core positions remain much better downside puts/hawkish insurance built up over months.
  • The 2-Yr yield is down 1.2bps at 0.137%, 5-Yr is down 2.9bps at 0.7999%, 10-Yr is up 2.8bps at 1.6462%, and 30-Yr is up 4.3bps at 2.4212%.
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