I just reviewed the slides used in Bullard's presentation today. Some issues are extremely clear.
* The markets are remarkably quick to anticipate Fed decisions.
* QE is the only workable alternative available to the Fed to stimulate the economy.
* Early termination of QE could result in the same conditions which have existed in Japan for many years - persistently low interest rates and deflation.
There's really no doubt that QE will continue for a long period of time, probably over one year from now. However, the dollar value of securities purchased will likely decrease over that period.
A large percentage of equity is now directed to purchase of TBA's, and it's been a game changer. The requirement to settle and repurchase TBA's means that short term market changes flow quickly to taxable income, and will influence the dividend.
At this time a dividend cut is only a 30% chance. If Agency RMBS prices don't improve by the end of June, that chance will rise to 60%.