This statement was made when the 10 year was at 2.70, exactly where it closed today. Because of the no taper, and bearish comments on the economy that was given by the fed, I would think 10 year goes to 2.2% from here. And AGNC portfolio appreciates.
"To this point, we still have a significant percent of our portfolio in specified MBS that could appreciate materially if rates decline significantly"
The Fed has lost all credibility. It keeps saying that the end of QE is data-dependent, so it can't determine the taper start date. But the Fed is sure that short rates will be low well into 2015. How can they know one without knowing the other?
The Fed believes that one of its most effective tools is transparency. But after giving everyone the impression that taper would begin in September, they pulled back. Transparency becomes very dangerous when the message is misleading. Had they tapered a small amount in September, then delayed any additional changes, it would have reinforced confidence in the Fed without affecting, in any material way, the amount of stimulus. What they did was completely illogical when considered in light of their objectives.
The Fed has determined that the economy has failed to gain strength consistent with Fed expectations. This points to the fact that QE doesn't work as effectively as hoped. So after there's abundant evidence to indicate QE isn't effective, it's being continued. They continue to do the same thing expecting a different result.