Fed May Double Mortgage Bond Buying Commitment

We are in week 11 of the Fed’s mortgage bond buying program, a topic we discuss weekly on Friday’s when the Fed’s mortgage bond buying is reported for the given week. The purpose of this program is to buy mortgage bonds which drives bond prices up and yields—or rates—down. The original commitment announced November 24, 2008 was to buy $500b in mortgage bonds, and the buying started in January. As of last Thursday, the Fed had bought $217b or 43.5% of their original commitment.

The problem is that all bond investors have publicly said that their intent is to buy mortgage bonds and sell them before the government is finished buying. This would cause upward pressure on rates. So the latest development is that the Fed may need to double its original commitment to make sure the program works to hold rates down.

Rates are already historically low and this would certainly drive them lower.