Fed talk of good bank, bad bank scenario sends Dow up 128 points

Day two of the Federal Open Market Committee meeting is upon us with results/policy statement due out at 1:15 pm CST.  The Fed is expected to stand Pat with the potential to announce the addition purchase of treasuries and/or other consumer-backed paper (credit card debt, car loans, etc.).  Talk on the street has also surface about the good bank, bad bank scenario where the Fed would set up a bad bank to quarantine the toxic assets on the good banks balance sheets.  The “talk” has lifted stocks, especially bank stocks as the Dow is currently up 128 points.  

Mortgage backs are treading water into the FOMC, currently down 1/32nd on most coupons.  The 10-year note is off 7/32’s, trading at a yield of 2.54%.  

Expect a steady trade with volatility picking up once the announcement and policy statement hit the tape.

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