April 6, 2022 | Premium Service | Back in Q1 2020, March 24th to be precise, the FOMC rescued the markets from the shock of COVID and nearly swamped several mortgage lenders and REITs in the process. The Fed’s early open market purchases were actually focused on the wrong TBA contracts, further exacerbating the impact of “going big” with liquidity, but the Fed eventually got it right. Now two years later, we are reversing the go big liquidity trade. FRBNY EVP Lori Logan thinks that the natural “runn oft” from the Fed’s system open market account (SOMA) is about 15 CPR, but we think that the Fed’s got it wrong again by more than 2x. Based on the FOMC minutes released yesterday, Ms Logan and her colleagues at the FRBNY are about to inject huge volatility into the markets as they struggle to reduce the size of the SOMA. What is the next big trade in this increasingly uncertain environment?