Fed Mortgage Bond Program, May 21-27 (week 21)

This week was the 21st week of a mortgage bond purchase program by the Federal Reserve—here’s week 20. Beginning on May 21 and ending on May 27, the Fed bought $24.54b net of mortgage bonds—below is a table breaking down the amounts for each coupon and maturity across the three agencies that issue mortgages: Fannie Mae, Freddie Mac, and Ginnie Mae. They focused on 4% and 4.5% coupons for the third straight week, which represent outstanding loans in 4.25%-4.675% and 4.75%-5.125% ranges respectively. Rates got noticeably higher since May 21, as a significant mortgage bond selloff pushed bond prices down—when bond prices decrease in a selloff bond yields (or rates) rise.

As we discuss in our weekly reports, the Fed has been using their mortgage bond buying to elevate mortgage bond prices which pushes rates down. It depends on factors like: which coupons they buy week to week and how much, amount of private selling pressure their is working against Fed buying, and how much supply is coming onto the market. Looking at these factors in the context of this week: private sellers started in heavy on supply concerns about not only too much Treasury bonds coming into the market as Treasury raises money for government stimulus but also mortgage bond supply. All the low-rate refis of the past two quarters are now starting to come into the bond market. The Fed didn’t adjust from their average weekly buying amount in the wake of private selling and the result is higher rates.

As we’ve been saying, going forward into the coming months, further significant rate drops as a result of Fed mortgage bond buying don’t seem likely because rates have already dropped to historical lows and the Fed will continue to face more private selling pressure as they move deeper into their $1.25t budget (more on this below). The longstanding money manager strategy is to buy agency MBS ahead of Fed buying and sell at a profit before the Fed does. So as we move through the year, the Fed’s mortgage bond budget is might be enough to offset private selling but probably not enough to bring rates down drastically from current levels.

What Mortgage Bond Buying Means for Rates And Consumers
See this report for a detailed description of the Fed program and what it means for consumers. We will continue to monitor this weekly like we have been—to try to help consumers make decisions but the gist is: rates are at all-time lows, so if you can get the right price on a property purchase you’ll get a record low rate to go with it. And if you’re looking to refi, this year is your time, with the safe bet being before the Fall.

Tally Of Mortgage Bonds Bought By Fed
The Fed, according to their own reporting, has bought $515.76b net of mortgage bonds, which is 41.26% of their allotted $1.25t target by December.